This blog was started a little over 8 months ago with one purpose. To promote massive loan modifications. My blog was actually the only website on the internet that disseminated information about loan modifications to the media and to consumers.
8 months ago, a loan modification was like a white elephant. Rare, never talked about and rarely will you ever see one with your own eyes.
Times have changed and since then it has been all the rage in the media. The day I saw President Bush on TV talking about loan modifications, I knew that I made one of the best decisions of my life to start these websites and since then, the popularity of the “loan modification” has grown in leaps and bounds.
Today it has gone a step further and a step in a direction that I have been calling for the last 3 months.
“Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole,” Bernanke said. “Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done,” the Fed chief said.
One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,” Bernanke said.
The facts are that thousands of Americans are saying, “Take this house and shove it, I aint paying you no more!” Their walking in droves from their homes that are more than under water. Hell, their sitting at the bottom of the ocean and Countrywide would have to hire Jacques Cousteau in their loss mitigation department for deep sea expeditions to contact borrowers in the deep sea housing wreckages that sit on the ocean’s floor.
More from Fox:
With low or negative equity in their home, a stressed borrower has less ability — because there is no home equity to tap — and less financial incentive to try to remain in the home, he said.
Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. “They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,” Bernanke said.
Still, Bernanke suggested such longer-term permanent solutions may work better than shorter-term and temporary ones, where the distressed homeowner could find himself in trouble again. “When the mortgage is `under water’ a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure,” he said.
To date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said.
“Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs,” Bernanke said
Lenders last year were on pace to initiate roughly 1.5 million home foreclosure proceedings, up from an average of fewer than 1 million new foreclosures in the preceding two years, the Fed chief said. More than one half of the foreclosures started in 2007 were on subprime loans givens to borrowers with blemished credit histories or low incomes.
The housing collapse dragged down home values, especially clobbering these subprime borrowers. Many were left with mortgages that exceeded the value of their homes. They were further socked by low introductory rates on their adjustable mortgages resetting to higher rates, making their monthly payments difficult or impossible to afford. Problems in the credit markets have made refinancing a mortgage harder.
My prediction is that in the next 2 years that in order to keep people from walking from their homes, that we will see significant balance reductions during the loan modification process. I suspect in California we will see $100k-$300k reductions in the near future.
That is the only way to mitigate further damage to the housing market!




