Mortgage Modification: Mostly by Reduced Interest Payments

I have summarized reports by Treasury, FDIC, and the Congressional Oversight Panel in the Table below. Pooling and service agreements do not permit term extensions beyond a few months, because each mortgage in the pool is supposed to mature at about the same time. Very little of the monthly payment is principal, so there is not much scope for reducing monthly payments by reducing principal. In practice, the principal balance is a actually bit higher after modification because arrearages are added to the previously scheduled principal.

Thus, modifications reduce interest in order to reduce monthly payments to 31% of AGI. As explained in my papers, this creates a marginal income tax rate in excess of 100%.