This paper examines how home retention activities benefit credit risk holders by reducing the number of mortgage defaults that transition to foreclosure. The current GSE and FHA home retention programs reflect a set of best practices that effectively resolve mortgage delinquencies, generate loan reperformance, and avert foreclosure-related losses. The best practices include judicious use of mortgage forbearance for temporary hardships; deferral of accrued missed payments for borrowers able to resume prior payments; cost-effective payment relief tailored to varying interest rate environments (rather than fixed affordability targets); and streamlined access to assistance programs to speed resolution and limit arrearages. As a result, GSE and FHA retention efforts have averted billions in government losses.

This paper demonstrates that loss mitigation programs provide meaningful financial benefit to the GSEs, who hold the credit risk associated with borrower default and foreclosure. The analysis quantifies the financial impact of the GSEs’ home retention programs, including payment deferral and Flex Mod. After accounting for self-cures and redefaults, each completed retention action saves the GSEs $19,000 compared to a disposition (e.g., foreclosure or other forced home sale) and $14,000 compared to a market-rate modification.  Today, with delinquency rates at fairly low levels, these programs are projected to save $1.5 billion by averting 30,000 dispositions. If delinquency rates were to return to COVID-19 highs, savings could reach $15.9 billion by averting 320,000 dispositions.