Foreclosure Mitigation Efforts in the United States: Approaches and Challenges
IMF Staff Position Notes, January 27, 2009
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- Foreclosure Mitigation Efforts in the United States: Approaches and Challenges
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Bibliographic details
- Authors: Vladimir Klyuev, John Kiff
- Published: January 27, 2009
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781589068247.004
Background and context
- Home foreclosure rates in the United States have risen to the highest levels since the Great Depression.
- Drivers cited:
- Falling house prices.
- Tightening lending standards.
- Rising unemployment.
- Interest rate resets in the pipeline.
- Foreclosures are projected to go even higher under these conditions.
- The paper frames foreclosures as typically a suboptimal resolution of a distressed mortgage.
Key impediments to successful mortgage restructuring
- A number of features of the mortgage finance system often prevent loan modifications.
- The paper identifies several market failures that impede effective restructuring (summarized by theme rather than by itemized list in the source).
- The core problem is identified as a combination of:
- Negative housing equity.
- Unaffordable debt service.
Findings and analysis
- Successful loan modification schemes must address both negative housing equity and unaffordable debt service.
- Foreclosures play a key role in adverse housing market dynamics.
- Because of the market failures and the systemic role of foreclosures, the burden of mortgage debt restructuring should be shared by the taxpayer.
Policy proposals and recommended approaches
- Proposals reviewed in the paper aim to improve the incidence and effectiveness of loan modifications by addressing both equity shortfalls and debt-service affordability.
- The paper argues for policy designs that combine solutions to negative equity and unaffordable payments in modification programs.
- Given identified market failures and the broader effects of foreclosures on housing markets, the paper supports taxpayer involvement in sharing the burden of restructuring.
Subjects and keywords highlighted in the source
- Subjects: Collateral, Financial institutions, Housing, Housing prices, Loans, Mortgages, National accounts, Prices
- Keywords: ARM loan origination, borrower default, Collateral, delinquent loan, home equity, Housing, Housing prices, loan liquidation, loan modification, loan term, Loans, mitigation effort, modification offer, modification procedure, modification program, modification scheme, mortgage borrower, mortgage industry, Mortgages, servicer IndyMac, SPN, subprime mortgage
Source: IMF Staff Position Note by Vladimir Klyuev and John Kiff, January 27, 2009. Accessed 9/21/2026.