Here’s an excerpt from yesterday’s NY Times editorial entitled ‘The year of the foreclosure’:
There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.
Banks’ unwillingness to take losses on second mortgages may also be holding up so-called short sales, in which a lender agrees to retire a first-mortgage debt by taking the proceeds from the sale of the home, even when the amount is less than the mortgage balance.And…
Excerpt from the NYT editorial entitled ‘This year’s housing crisis’:
… Things didn’t have to get this bad … The best way to modify an undewater loan is reduce the principal balance, lowering the monthly payment and restoring equity. But for the most part, lenders have refused to reduce principal because it would force them to make an immediate loss on the loan. Lenders have vehemently – and successfully – resisted Congressional efforts to change the law so that bankruptcy courts could reduce the mortgage balance for bankrupt borrowers. To avert the worst, the White House should alter its loan modification effort to emphasize principal reduction.
File Under: Newspaper of record?