Abstract

For borrowers with financial troubles in the mortgage market, current practice is to offer loss mitigation options only after mortgage defaults occur. Researches in this area focused on borrower’s post-default options and the effectiveness of different mitigation tools and servicers’ practices to prevent foreclosure. Same as researchers, practitioners and policy makers are interested mainly in determining when and how to provide interventions for delinquent loans. Some studies pointed out the cost saving effect by providing preventive services to borrowers in early delinquency stage, while others claimed the effects from altering the terms of modifying the loan contracts. In this paper, we present preventive loan maintenance models and argue that it is more cost effective by applying pre-default mitigation strategies before a borrower becomes delinquent and before the occurrence of defaults from a specific proportion of loans in a mortgage pool.   

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