2014 Conference

Since 2008, nearly 4 million mortgage contracts in the United States have been modified in some form, meaning a lender changed the terms of the loan such as the interest rate, number of repayment periods, or balance owed. To date, very little data exists on the mortgage consumers who have received modifications.  Given that many loan modifications and workouts are being negotiated by private lenders, there is the potential for historically underserved borrowers to be less likely to receive a beneficial modification.  This paper uses monthly data on subprime home mortgages merged with data on borrower race and income as reported in the Home Mortgage Disclosure Act (HMDA) to document the rate of modifications by race, as well as the terms of modifications and subsequent default rates. We compare loans subject to and not subject to the California Mortgage Settlement, which focused on minority neighborhoods in California. Using a difference-in-differences approach, we show (controlling for borrower, loan, and market characteristics) minorities are slightly more likely to receive a loan modification, and also slightly more favorable loan terms. The cumulative default rate of modified loans for minority borrowers is not statistically different relative to that of non-minority borrowers, however.