The combination of weakening in mortgage credit quality, upward pricing of hybrid adjustable-rate mortgages, falling home prices, and fewer refinancing options highlights the need to find a workable solution to current problems in the U.S. subprime mortgage market. This article describes a systematic and streamlined approach to loan modification that will help avert foreclosure for certain subprime borrowers who cannot afford to continue making mortgage payments when interest rates reset. The article also addresses common misconceptions about this approach. The text of this article is based on testimony delivered by Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation, on December 6, 2007, before the U.S. House of Representatives Financial Services Committee.
Last Updated: November 19, 2025