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Dr. Joseph Mason on Mortgage Modification

Dr. Joseph Mason, an internationally renowned expert on the impact of the subprime mortgage meltdown, released his latest research paper “Mortgage Loan Modification: Promises and Pitfalls” on Wednesday, October 3 in conjunction to appearing on a panel presentation to Congressional Staff.

Dr. Mason stressed that there are three major problems with First, the mortgage industry is not suited to handle a large scale modification effort. Most mortgage lenders modify less than one percent of their loans. Increasing that number up to 10 or 20 percent would represent a growth of 1,000- 2,000 percent for the industry. Second, while mortgage modification may be less costly than foreclosure (although this is far from certain), the difference could well be negligible. Third, the authorities calling for massive modification efforts must realize that, “Payment deferral will not help people who inflated incomes or bought properties they could not afford.” Since, by some estimates, borrowers inflated their stated income by 50 percent or more in 70 percent of approved loans, it is most likely that few borrowers would benefit from a modified lending agreement that would be economically feasible for both the lender and the borrower.

To read Dr. Mason’s paper in its entirety, click here

Dr. Mason recently testified before the U.S. House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Washington, D.C. on Thursday, September 27, 2007. The hearing addressed the role of credit rating agencies in the structured finance market. His academic research papers, "How Resilient Are Mortgage-Backed Securities to Collateralized Debt Obligation Market Disruptions?" and "Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions", co-authored with Joshua Rosner, managing director, Graham Fisher & Co., accurately predicted the broader economic effects of the slumping housing industry. Dr. Mason has frequently provided commentary on a number of media outlets including The Wall Street Journal, CNBC, CNN, The New York Times, Bloomberg Radio, USA Today, and The Washington Post.