...The FDIC's loan modification proposal has th e potential to help a significant number of distressed borrowers and, if successfully an d widely implemented, is likely to reduce cumulative losses for mortgage loans under lying U.S. RMBS. In contrast, mortgage lender/investor and mortgage servicer interest in the FHA's Hope for Homeowners (H#H), in its current form, may be limited and its volumes small. Therefore, it likely will have much less of an impact on cumulative losses. The details of the programs are still evolving, which could change our observations. A major strength of the FDIC loan modificati on proposal (FDIC Program) is that it bal- ances incentives for the key participants in a mortgage: borrower, servicer and investor. The program provides strong motivations for investors to participate, through loss shar- ing with the U.S. government if the modified loan defaults. Unlike the FHA program, the outstanding loan principal amount is not written down, thereby allowing investors...

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