Mortgage lenders modify loans but don't cut principal

10/3/2008 | Financial Week

Loan modification for homeowners in financial trouble is exploding, but lenders are not utilizing principal reduction, even for borrowers in negative-equity territory. Credit Suisse said principal reduction, which forgives a portion of the mortgage balance and lowers the monthly payment, is a powerful tool for reducing delinquency because it encourages homeowners to stick it out. The bank pointed to research showing that only one in four delinquent mortgages was still delinquent eight months after a principal reduction.

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