During the recent housing recession and financial crisis, mortgage modification has been heavily promoted by government as a way to stabilize the housing and the national banking systems. Numerous programs, such as the Home Owners Preserving Equity (HOPE), Home Affordability Modification Program...

This paper presents a systematic framework for capturing the collateral-driven mortgage default risk. A forward-looking home price distribution model is developed that explicitly incorporates different sources of volatility in the market value of collateral houses. A consistent and...