Few Mortgage Modifications Include Principal Reductions

Have the mortgage-modification floodgates opened? For the one-in-four American homeowners who owe more on their mortgages than their homes are worth, a reduction in the mortgage's principal balance can shift the borrowers' math and their mindsets in favor of staying in the game: Drop the amount of their loan and they make more of an effort to keep making payments and avoid foreclosure.

The data bears this out; the industry-wide re-default rate on loan modifications overall hovers around 53% six months into the modification, but only half as many homeowners re-default after a loan modification that reduced the principal owed on the loan.