Principle reduction help for Buford GA and Nationally

Principle Reduction help for Buford GA and Nationally.

Despite many programs to help underwater homeowners, the financial crisis continues and foreclosures loom throughout the country.

Some experts say the housing answer is not just lowering interest rates but also actually reducing principal. In other words, these experts are encouraging banks to write down the principal and interest rates to current market value, which according to some experts would save homeowners $71 billion each year. CoreLogic reported that at the end of the second quarter 2011, underwater homeowners owed $709 billion on mortgages (much more than their homes were worth).

Real estate expert, Tanya Marchiol, who has appeared on TV, in print, and on Sirius Satellite Radio, writes in a recently released report, "In 2010 the nation's top banks paid out twice that amount in bonuses and compensation ($146 billion)."

Marchiol claims the savings to homeowners whose mortgages are upside down would create an economic boost to the economy -- creating jobs, reducing mortgage payments, helping investors–rather than the negative financial effects which ripple through the economy when a foreclosure occurs.

Marchiol writes that, "investors would typically be better off if servicers would agree to loan modifications with principal reductions rather than letting the home fall into foreclosure."

However, the thought of principal reduction and loan modifications are often scoffed at by big banks. Marchiol claims that's because servicers can actually make more from a property that is foreclosed on by the foreclosure-related fees. She points to the National Consumer Law Center and writes, "A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed." This Marchiol claims is often not in the best interest of the mortgage investor. She explains that when a servicer forecloses on a home, it's the investor who is "saddled with all foreclosure-related costs: legal fees, maintenance costs on the property, sales costs, etc.".

That can be quite costly. The argument Marchiol makes is that it can be cheaper to simply write down principal to the current market value and avoid foreclosure. A win for everyone she explains, and the solution to "solve the housing crisis and jumpstart the economy".

However, quite obviously big banks have not viewed it this way and have resisted principal reduction or loan modifications.

Opponents of principal reduction argue that the main reason it doesn't work is because of what is referred to by economists as asymmetric information, according to information by the Federal Reserve Bank of Atlanta. This basically means that only the borrowers truly know if they will really default on a loan and let it fall into foreclosure. So, this theory speculates that without this information investors who back mortgages are essentially guessing which ones may or may not default and which ones truly need help as opposed to defaulting and trying for help simply because a principal reduction might be available.

The authors, economists, Chris Foote, Kris Gerardi and Paul Willen write on the website, "The argument for principal reduction depends on superhuman levels of foresight among lenders as well as honest behavior by the borrowers who are not in need of assistance. Thus far, the minimal success of broad-based modification programs like HAMP should make us think twice about the validity of these assumptions"

So far, programs like the Principal Reduction Alternative (PRA) have only really helped what would be considered a mere handful (53,000) of fortunate homeowners. Many millions more remain in need. PRA offers incentives to investors to reduce principal on certain mortgages. It's part of the Home Affordable Modification Program (HAMP) but PRA's reach has been limited partly because the program requires that the mortgage not be owned by Fannie Mae or Freddie Mac, which significantly reduces the number of homeowners who can qualify.

PRA launched in October of 2010 and requires that mortgage servicers evaluate homeowners for a possible principal reduction when they apply for a HAMP loan modification, (provided they do not have a Fannie Mae or Freddie Mac mortgage) and have a loan-to-value ratio greater than 115 percent. The investor who holds the mortgage must approve the principal reduction. Homeowners who are approved will earn one-third of the total reduction over a period of three years, provided they stay current on their mortgage.

Marchiol sums it up, "The American economy is chained to the crushing housing debt load. Chronic unemployment, foreclosures, and small business closings can all ultimately be traced back to the housing crisis."

She claims principal reduction is the answer to the housing crisis. "Now it is the banks' turn. Principal reduction will restore the American Dream, create jobs, and give the American family the ability to breathe again." 

We specialize in Short sales, foreclosures and Homeowner counceling. Please call me directly at 770-757-7200 It would be my pleasure to help any way I can.