If the current administration gets its way, some of the country’s largest banks could be forced to pay for billions of dollars in principal reductions on loans. The administration is citing “breakdowns in mortgage servicing” as the cause for the settlement, and some state attorneys general are also asking for civil fines and modifications for troubled borrowers[1]. The administration believes that a settlement could “help lift a cloud of uncertainty that has stalled the foreclosure process since last fall” during the robo-signer debacle[2]. Currently, economic recovery is stalled along with the foreclosure market according to many experts.
One of the benefits of the deal according to many parties is that there would not be new government programs created to reduce principal. HAMP (Home Affordable Modification Program) has been extremely controversial and, by most accounts – including that of TARP inspector general Neil Barofsky – has been a disappointment if not an all-out failure[3]. The administration is proposing that banks handle write-downs on loans, but that they also bear the cost of those writedowns rather than passing them on to investors. The settlement revolves largely around lenders agreeing to “eat” these losses.
However, issues such as differences of opinion on who was harmed by last fall’s breakdown – and how much – and whether or not cutting principals actually improves payment patterns hinder parties from reaching a settlement. Furthermore, there will be, of necessity, a limit on the number of mortgages that can be “cured” with any settlement. All parties are hoping to come to some sort of agreement, however, so that lenders do not have to face civil actions, smaller but myriad penalties and additional uncertainty in coming months that could leave the foreclosure market as well as the rest of the real estate market and the economy at large hanging in limbo.
Do you think that this settlement is a good solution? Can it work?
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[1] http://www.reuters.com/article/2011/02/24/usa-mortgage-settlement-idUSN2320614720110224
[2] http://online.wsj.com/article/SB10001424052748703842004576162813248586844.html?KEYWORDS=mortgage
[3] http://www.totalmortgage.com/blog/mortgage-rates/tarp-watchdog-resigns-blasts-hamp-once-again/10325
I agree with the 3 ladies above. The banks should be held accountable to do what makes sense. And lowering the principle in many cases makes the most amount of sense. Especially on 2nd mortgages. If a homeowner is $100K upside down and has an $80K second mortgage what sense does it make for them to pursue foreclosure? If the homeowner does a short sale the second mortgage holder will only end up with a few thousand dollars tops. (whatever the first is gracious enough to let them have.) If it goes to foreclosure they will get nothing. Making a large principle reduction would most likely not only be the best solution for the home owner, the neighborhood and the local government but also the underlying investor who is making the principle reduction. Not to mention the overall economy which the banks are the number 1 culprit in destroying at this time. They are using a double edged sword to cut the legs out from under this economy by 1.) Foreclosing on all these properties driving down values, creating ineligable buyers, and driving up inventories. & 2.)Restricting lending to the point where it is driving down values and creating a domino effect with reason number one. It is almost like it was being done on purpose because of how systematic it is. It is hard to believe that an industry could be that incompetent. Since the REOs are being sold on average for less than short sales which after figuring the cost of the foreclosure process means they are netting significantly less. The only thing reducing principle does is keep the rest of the market from collapsing. The underlying investors are not losing any more money but it stops the declines in value. Why would they not do this unless their goal was to drive down values? Intentionally driving down values of the averag American’s number 1 source of wealth while stock piling cash could be a way for the ultra- rich to take over even a larger percentage of the nations wealth. I hate to sound like a conspiracy theororist nut job but that is easier to believe than the people in charge of our financial systems can’t do a basic mathamatical analysis. As long as we have a government that is representing “too big to fail” multi national corporations instead of the American people this country is in trouble. D
I find it very discomforting that I hear and see many of my family, friends and friends of friends going through this economical struggle and hardship. I’ve seen them lose their homes through short sales or foreclosures. I also understand that many of these people should have never been a position to buy in the first place but it’s discouraging knowing that with a little touch of humanity and common sense we can help 80% of these situations.
My struggle with this matter is that I have found a solution for about 20% of the bad debt that these banks have written and I can’t seem to get anyone to help. I have gone to my local congress person and to some banks but I’m just a small fish in a ocean that no one hears or wants to help. Very disappointing that I want to help my fellow American and I can’t.
If the American Media ever returns to News, this will be a headline story. As long as the publicis ingorant of what is being done to them by what remains of the American financial system, the abuses will continue.