Loan modifications programmes are not necessarily providing benefits to all lenders, borrowers and investors in RMBS loan transactions, suggests a new report published by Fitch Ratings. Loan modifications were introduced into UK RMBS in January 2008 and have become prevalent across the major European residential mortgage markets. They are generally offered to borrowers to help improve their financial position and their ability to maintain mortgage payments, in the short to medium term. The report, European Mortgage Loan Modification Schemes - A Comparative Study, says that 52% of UK loan modifications are in the form of capitalisation of interest arrears, which increases the outstanding mortgage balance. A further 17% of modifications represent a transfer of the loan type from a repayment loan to interest only. Almost seven out of ten (14.9%) of modified loans from 2008 to 2010 have redefaulted, and of these eight out of ten (81% of this total) were non-conforming loans. The Mortgage Rescue Scheme set up by the UK government in 2009 has helped 2,600 households, but this is well short of the anticipated 6,000 households. Throughout Europe, Ireland has seen the most widespread use of loan modifications, with over 8% of outstanding loans being modified. More than half of these loans are for performing borrowers who anticipate future payment problems. Of the total loans being modified in Ireland, around 80% are aimed at reducing borrowers' monthly payment amount, with the rest being a temporary payment holiday or capitalisation of arrears. Italian banks use loan modification schemes for RMBS transactions, within the limitations of the transaction documents and government schemes are available which offer aid to borrowers. In Spain, 3.2% of loans in RMBS transactions have been modified, however in the Netherlands, loan modification programmes are virtually non-existent, with traditional resolution methods remaining preferable. Mark Wilder, associate director in Fitch's Operational Risk Group, said: "Europe is experiencing a low interest rate environment that effectively provides the biggest 'loan modification' of all to borrowers, but it also creates challenges for lenders and servicers in developing effective modification strategies for loans in arrears. "The agency notes that potential loan modifications are being declined by the borrower, implying that they are finding sufficient relief from low interest rates."