Principal Reductions negotiated by the state Attorney Generals?
No one wants foreclosure. Loan Modification with principal reduction…this is what almost every underwater homeowner is seeking. To date, meaningful principal reductions, without extensive litigation, have been rare as hens teeth.
It appears that very issue has been on the minds of the varous state Attorneys General who have been struggling mightily to craft a settlement with the large banks that service most of the loans in the country. Articles in the major media today and Sunday address their agonizing progress.The good news for homeowners is that the issue is on the table.
The very bad news is that any such reductions may go only to a severely limited pool of borrowers. Evidently, the settlement discussions do include ‘credits’ which the bank must use to give principal reductions, but (at present) such reductions WILL NOT be available to borrowers whose loans are owned by Fannie Mae and Freddie Mac, the two behemoth secondary market entities that Uncle Sam now explictly guarantees. [In my opinion, this is one of those unintended consequences an economy encounters when the government has inserted itself and the taxpayer into the private market]. As the New York Times reported on Sunday October 30, 2011, there is tremendous controversy over these aspects of the talks, and even greater disappointment over the rather limited scope of the concessions that seem to have been ‘won” from the banks so far. Read the article at http://www.nytimes.com/2011/10/30/business/a-foreclosure-settlement-that-wouldnt-sting.html?_r=1&ref=business
“A handful of state attorneys general became so troubled by the direction this deal was taking that they dropped out of the talks. Officials from Delaware, New York, Massachusetts and Nevada feared that the settlement would preclude further investigations, and would wind up being a gift to the banks.
It looks as if they were right to worry. As things stand, the settlement, said to total about $25 billion, would cost banks very little in actual cash – $3.5 billion to $5 billion. A dozen or so financial companies would contribute that money.
The rest – an estimated $20 billion – would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.”
A Wall Street Journal article on Tuesday November 1, 2011 emphasized that though there are discussions to increase the overall purported ‘dollar’ value of the settlement, all terms are still in flux. http://online.wsj.com/article/SB10001424052970203707504577010421094503502.html?mod=djemRealEstate_t
These negotiations have been going on for months if not years, it’s difficult to predict if and when any final deal will be inked.
