Lower Principal on Underwater Mortgages to Market Value

[FayeforCure]

The rampant mortgage servicer abuse that has so strongly characterized the crisis, both inside and outside of HAMP, continues to go unpunished. There are no easy answers, but I believe that any government solution must contend with underwater mortgages (that is, mortgages where the amount of the outstanding principal owed exceeds the value of the home) and servicer accountability.

Today, CoreLogic estimates that there are 10.9 million underwater mortgages, or 22.5% of all outstanding loans.

Recovery will continue to be frustrated until there is a reasonable solution to this problem. Too many would-be employees are unable to move to find employment because they are chained to a house they cannot sell; too many homeowners understandably choose to walk away from their home rather than make payments without any hope of regaining equity (causing additional foreclosures and additional downward pressure on housing prices); and there are too many unaffordable mortgage payments based on too much outstanding principal.

There needs to be a recognition that many borrowers will never make the required payments on their underwater mortgages, and that the owners of these mortgages have already lost any meaningful chance of obtaining a full recovery of the outstanding principal. The sooner that this reality is recognized and addressed, the sooner a recovery can take hold. As such, an aggressive principal reduction program is necessary, and can possibly be accomplished through: (a) government subsidies (such as the SIGTARP recommendation that principal reduction be mandatory in HAMP when it is in the best interests of both the borrower and the investor), including potentially tapping the tens of billions of dollars of obligated but unlikely-to-be-used HAMP funds; and (b) compulsion through a meaningful settlement of the allegations of servicer fraud and abuse.

Unfortunately, the failure of the government's response to the foreclosure crisis to date gives little reason to hope that either of these potential solutions will soon come to pass. Treasury should have negotiated principal reduction right from the start, utilizing its TARP investments as leverage over the parent companies of the mortgage servicers. Instead, it incompetently administered an ineffective program that seems to have better served the banks than homeowners. At this point, it may prove difficult to even attract homeowners to yet another government program. Too many have suffered the experiences detailed in the GAO survey, and housing counselors describe a condition they call "HAMP fatigue," where borrowers just don't trust the government to help them anymore.

http://www.huffingtonpost.com/neil-barofsky/foreclosures-mortgage-crisis-_b_995922.html?page=1

[FayeforCure]

An intelligent dialogue in Congress these days is about as likely as a Lady Gaga presidency, but Levin and his colleagues, including the less optimistic Robert J. Shiller, are paid to generate ideas that matter, and that's what they did Thursday night. "The fact that we now have seen public protests," Levin said, "compels us to talk about the issue."

What's the right policy response to sustained anger in the streets over lack of jobs and a concentration of wealth that leaves out "the 99 percent?" Government has a strong role, five of the six agreed. But before we get too far, things could get much worse.

"We shouldn't have the idea that the next boom is right around the corner," said Shiller, Arthur M. Okun Professor of Economics , known for books such as "Irrational Exuberence," for the Case/Shiller housing price index and for identifying the housing bubble in 2003.

With 2 million families already thrown out of their houses, and 5 million more seriously delinquent on their mortgages, the threat of mass foreclosures is real, said John Geanakoplos, the James Tobin Professor of Economics. "That's when the riots are going to start," he said.

His idea calling for banks to forgive principal, not just lower interest rates on subprime loans, is not, he said, a moral hazard â€" a rewarding of risky behavior gone bad. That's because the forgiveness should happen for homeowners who are current on their payments, and borrowers who are not would lose remaining equity value.

http://articles.courant.com/2011-10-14/business/hc-haar-1015-20111014-9_1_housing-bubble-economics-ideas

I do not agree with the last part..........there is a reason people are behind on their mortgages...........and the majority wasn't due to homeowners' "risky behavior," rather it was due to faulty business practices of banks, compounded by a crashed economy with scarce jobs. The "it's your own fault" crowd don't realize they could easily be next.

[FayeforCure]

Every year we hear about big bank executives being awarded multi-million dollar bonuses, even while those same big banks crashed the economy.

Families, homeowners, and those of us looking for jobs are all struggling. But big banks continue to foreclose on families, withhold affordable credit, fund predatory payday lenders and refuse to pay their fair share of taxes. Now, this holiday season, big bank executives are projected to award themselves billions of dollars in bonuses.   


It’s time to set them straight.

Sign this open letter today and tell Bank of America’s Brian Moynihan, JP Morgan Chase’s Jamie Dimon and Wells Fargo’s John Stumpf to forgo their multi-million dollar bonuses and invest in America IMMEDIATELY.

http://www.newbottomline.com/say_no_to_big_bank_executive_bonuses?utm_campaign=bonus_s&utm_medium=email&utm_source=bac


Big banks can help rebuild America by writing down principal balances for families who are underwater or facing foreclosure, lending to small businesses to get the economy moving again, and paying their fair share of taxes.

http://www.newbottomline.com/say_no_to_big_bank_executive_bonuses?utm_campaign=bonus_s&utm_medium=email&utm_source=bac

For perspective, the $143 billion in bonuses and compensation banks handed out last year could extend unemployment coverage for each of the 15 million unemployed workers in the United States by more than seven months. $143 billion could buy individual health insurance plans for 65 percent of the nation's uninsured, changing the lives of more than 29 million people in the process.

But big bank executives won’t act unless you demand it. We will soon deliver this letter and message to top big bank execs and board members across the country.


Sign the open letter to the big bank executives today and demand they forgo their huge bonuses.


Tell them that this money should go toward keeping families who are facing foreclosure or underwater in their homes. Towards providing quality loans to small businesses and families. Towards investing in communities, not just padding their pockets.

Thanks so much for your action,
Ian, Tracy, Ilana, and The New Bottom Line team

P.S. Another way to send a message to big banks is to stop letting them use our money. Click here for a video about breaking up with our banks and for resources to help move money out of big banks and into local credit unions.