Foreclosure prevention methods focus primarily on reducing monthly payments. However, traditional modification methods of interest rate reductions and term extensions fail to properly address borrower equity, or lack thereof, according to securitization research this week by Deutsche Bank. In particular, the occurrence of re-defaults in rate and term modifications is historically higher than that of principal reduction, according to a graph in that report: The Principal Reduction Alternative (PRA), detailed by the Treasury Department in recent guidance, provides services with a new tool to complement the Home Affordable Modification Program (HAMP). The Treasury first began to push principal write-downs for HAMP in late March. PRA can help servicers reduce the debt burden on underwater borrowers, Deutsche said. Therefore, researchers expect PRA to be a more effective HAMP tool to reduce the re-default rate of modified loans. In order to qualify for PRA, borrowers must first be HAMP-eligible, must have a current loan-to-value ratio greater than 115% and must be delinquent or in imminent default (on the verge of default). "Clearly, the PRA program will have the most impact on borrowers with option ARM and subprime mortgage loans," researchers wrote in the report. Deutsche Bank found that 33.2% of non-agency option adjustable-rate mortgages fell under the qualifications set by the Treasury. Additionally, 23.7% of non-agency subprime loans, 16.2% of non-agency Alt-A loans and 4.1% of non-agency prime loans fit the standards. Of the total non-agency market, 17.5% fall under PRA guidelines, according to researchers. Write to Diana Golobay. Additional reporting by Jacob Gaffney.