Slashing a borrower’s mortgage payment may be the best way to cure delinquent loan payments even when compared to principal reductions, a new research paper from the Federal Reserve Bank of New York says.

The paper’s authors Andreas Fuster and Paul Willen studied the effects of interest rates moving lower on hybrid-adjustable rate mortgages. The point of the research is to determine the impact of substantially lower mortgage payments when a borrower is in a distressed state. 

The data retrieved from the study caused the two authors to conclude that “the size of the monthly payment matters strongly for delinquency and cures.” Even when borrowers are underwater, it’s clear the size of the monthly payment remains the key factor in the borrower’s ability to keep making payments.

The pair’s research suggests cutting a borrower’s payment in half can reduce delinquency risk by two-thirds. This outcome is equivalent to lowering a borrower’s loan-to-value ratio from 145 to 95.

The takeaway from the report is principal reductions are not the catch-all for curing delinquent loans. However, the process of controlling monthly payments alone can play a key role in curing past-due home loans.

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