Attorneys General Drop Demands For Principal Reduction In Mortgage Servicer Negotiations
May 11th, 2011
This week, the country’s 50 state attorneys general will meet with mortgage servicers to try once again to negotiate a settlement agreement to resolve ongoing issues with lending and credibility that surfaced thanks to robo-signing issues last fall. Reportedly, the controversial issue of principal write-downs has been dropped from the discussion[1]. Instead, the AGs will focus on levying high fines to be used by individual states to help homeowners avoid foreclosure. Some hope for a fund that might “eclipse $20 billion”[2]. Proponents of this plan argue that then the states could use the fund to write down loans on their own without forcing the banks to get involved in the process at all. Lenders balked at being forced into write-downs because they believed that they would be, essentially, punishing homeowners who paid their mortgages on time and rewarding those who defaulted, potentially unleashing a storm of strategic defaults.
Also included in the negotiations will be “large-scale changes to practices within the servicing industry.” The AGs have compiled a revised version of their earlier proposal to servicers and presented it to them earlier this week. The talks will likely revolve around fines and these changes to practice.
Do you think that write-downs should have been removed from the table?
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[1] http://www.dsnews.com/articles/attorneys-general-in-settlement-talks-with-mortgage-servicers-2011-05-10
[2] http://www.washingtonpost.com/business/economy/state-attorneys-general-in-dc-for-talks-on-fund-to-aid-homeowners/2011/05/09/AFUMzpcG_story.html
May 11th, 2011 at 6:12 AM
I agree that if owners in default would receive a write down on their principal it would lead to other homeowners deciding they wanted a write down also. I am a Certified Foreclosure Intervention Specialist and Certified Distressed Property Expert and an REO agent. People get a lot of time before they lose their property. It seems most of these programs just delay the inevitable and the foreclosure happens but just later. Maybe it is better to get it over with and let the homeowner start over new.
May 11th, 2011 at 7:14 AM
Write downs absolutely should have stayed in the plan. It’s already been seen that basic loan modification does not work. The reason why is people are not making as much money as they were before and yet the price of everything continues to go up. The mortgage values were Overinflated-Which was CAUSED by the banks loose lending practices. Because the mortgage now is soo overinflated even a 2% interest rate cannot make that amount affordable and if it does when it adjusts upward it will eventually become unaffordable. Therefore rendering the whole loan modification program nothing more than a delay of the inevitable.
The only way people can afford a new loan mod is if there is a reduction in principle.
I say screw the banks as they have screwed the american public and mandate principle reductions all the way down to 110% of CURRENT Market value!! And to avoid the mass exudus of homeowners from their “current” mortgages, mandate this principle reduction to 110% of CMV for “ALL” loans issued between 2004-2007. These homes where never really worth this much in the first place and the banks NEVER should have been able to get this much for them. It’s time to make the true villain in this whole fiascoe pay the piper and give the true victims-the american public and our overall economy-some real relief.
YES this would be a boost to the economy! Think of all the new found income people would have to pay off their other debts and spend in the open markets. And if this forces some of these money grubbing banks to close their doors forever, I say good riddance!! America is full of entrepreneurs chomping at the bit to step up and take their place. Who knows they might even bring common sense and a concience to an otherwise greedy and heartless industry.
May 11th, 2011 at 12:20 PM
The problem i have with this is that the fines are going to the states. Once they have that money, they can use it for anything they want. If the principal reductions were still on the table, it would force the banks to deal with the Borrowers, and any reduction would go to them. all this is a way for the gov’t to get money while making it look like they are doing something for the borrower, while they are not.
May 11th, 2011 at 4:32 PM
Very interesting…they are missing the bigger picture here totally..There is already to many strategic defaults, prompted by the fact that the lenders aren’t willing to negotiate lower payments..There greed is causing irreparable damage to the industry as well as to the home owner and their own banking institutions.