Adopt a voluntary mortgage write down plan

written by: Jessica Mainel; article published: year 2010, month 06;

In: Root » » Loans and mortgages

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Many troubled mortgages could be salvaged if lenders would agree to modify them, typically by reducing the principal owed.

The borrower would get to stay in the house, the lender would avoid a costly foreclosure, and the economy might avoid falling into a destructive self-reinforcing cycle in which house price declines beget foreclosures which beget still more price declines.

Thus it seems both reasonable and urgent to encourage this wherever possible. While there is no silver policy bullet that will address this problem, a number of proposals have circulated that could help. Most involve a small commitment of taxpayer dollars.

Passage of an effective mortgage write-down plan faces several hurdles, including reasonable concerns that it would end up helping those who least deserve it.

Lenders who faithfully observed sound underwriting methods would not benefit; nor would those homeowners who are working hard to keep their mortgages current despite financial strains.

The counter-argument is that the housing problem is so serious that it threatens the honest and diligent as well as those who made big mistakes.

The cost to the overall economy in lost jobs, wealth, and tax revenue if troubled borrowers do not receive financial help will almost certainly be greater than the cost of bailing them out. Although there is no guarantee that such a plan will be adequate to the problem, it is worth the effort.

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