Press banks to help end crisis
Press banks to help end crisis
Kansas City Star: Since the home foreclosure crisis began, the Obama administration has responded with an array of mortgage-adjustment programs. None has done enough to end the problem.
Even Shaun Donovan, secretary of Housing and Urban Development, acknowledges that the programs have “not reached as many as we’d like.”
But in a recent meeting with The Kansas City Star’s editorial board, Donovan said at least one ongoing initiative could help change that picture. That involves negotiations with several large banks to settle the legal dispute over alleged foreclosure abuses. This is the scandal that broke last year regarding paperwork abuses such as “robo-signing,” or rapidly signing documents without reading them.
Here’s hoping this effort succeeds; it could generate significant progress in reducing the overall debt burden.
Officials are pressing the banks to allow borrowers to refinance at lower rates, even if their homes are worth less than their existing loan balances.
This option would be offered to the banks in lieu of hefty fines for which many may be liable. As Donovan put it, officials are telling the banks, “We want you to start reducing the principal balances well beyond what you would be willing to do otherwise, because it’s good for the country.” The Wall Street Journal reported that officials involved in the talks are seeking a hefty settlement that could reach $25 billion.
The deal wouldn’t involve all homeowners with “underwater” loans. It would apply to those who are current on their payments and whose mortgages are held by a bank, rather than those whose loans became part of a bond issue sold to investors.
If the settlement comes to fruition, it could generate resentment among some borrowers — those current on their notes but whose loans were pooled as mortgage-backed securities.
That’s understandable, but the debt mountain looming over the housing market is clouding the future not only of individual borrowers but the whole economy.
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