Question

The loan modification (freezing the mortgage rate) is an example of an indirect intervention by a government, explain the argument behind this decision.

Answer 1

Loan modifications are different ways by which a borrower can avoid foreclosure. i.e. a legal process according to which a lender can sell borrower's property to satisfy the debt. Hence, loan modification restructures the loan so that borrower can make easy payments by changing certain terms of the borrowings.

If loan modification exists then the lender can allow the following changes for less monthly installments as reduce the rate of interest, convert variable to fixed interest rate or extend the length of the term of the loan.