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Consumer advocates remain frustrated with servicers for not offering more principal write-downs and loan modifications to help borrowers stay in their homes.
February 21
The recently issued report from the court appointed monitor of the settlement agreement between the five leading mortgage loan servicers and the 49 state attorneys general contained some very interesting information.
Many observers have complained that the servicers have taken too much advantage of being able to get some credit against the settlement funds for eliminating second mortgages which, in reality, had no value anyway, calling this the "second mortgage loophole." But with the credit for eliminating or reducing second mortgages only 10% of the loan amount, is this something we really need to worry about?
More importantly, consumer groups are
I have written frequently in BankThink about the
Secondly, short sales provide a free market opportunity for the over stressed borrower to dispose of a property in an orderly way. Because the property is sold by a contract between a willing seller and a willing buyer, the price obtained is inevitably higher than the amount which the property would bring in a foreclosure. Short sales also generally avoid the damage to neighborhood property values caused by a foreclosure which is often followed by a contentious eviction.
A third point which is often overlooked by consumer advocates is that a high proportion of the troubled mortgages still in place throughout the country were obtained
All of this leads one to believe that the fact that the bulk of the relief, pursuant to the negotiated mortgage loan settlement agreement, is going to short sales is a huge victory for the agreement and the economy. It offers strong evidence that short sales are the correct way of administering a market determined principal reduction without any risk of "moral hazard" consequences. Banking regulators should take notice and do everything possible to encourage lenders and loan servicers to expedite short sales for the millions of homeowners still "underwater" on their mortgages.
Alexander R. M. Boyle is the retired vice chairman of Chevy Chase Bank. He has worked in mortgage lending and consumer banking for 30 years.