Loan modifications by FHA, VA and the U.S. Department of Agriculture do not provide meaningful payment relief when the market interest rate is higher than the original note rate, according to a report from the Urban Institute’s Mortgage Servicing Collaborative. In a typical loan mod, payment reduction can be achieved by extending the term of the loan, lowering the interest rate, reducing the loan balance, or combining the three. However, FHA, VA and USDA mods cannot provide any of those options aggressively enough when interest rates rise, MSC’s brief noted. In addition, government loan mods rely on the willingness of servicers to cover some of the modification costs, such as for below-market rate mods or the VA’s principal forbearance. “[Such] restrictions limit the number of borrowers that can be assisted and the amount of payment reduction for borrowers who receive modifications,” the ...