Punishment or Forgiveness? Loan Modi cations in Private Label Residential Mortgage Backed Securities from 2008-2014

I estimate the extent to which modi cations of privately securitized mortgages increased or forgave debt during the Great Recession and aftermath, from 2008-2014. I nd that loan modi cations weakened household balance sheets by adding $20 billion to household debt, with the net amount of debt added per modi cation doubling from 2010-2014. Using a decomposition analysis, I also nd that the increase in debt is consistent with capitalization of fees. Capitalization of fees is signi cant because it has been associated with a principal-agent problem between investors and mortgage servicers which prevented e cient loss mitigation, as well as consumer nancial protection abuses.