Real estate investors are beginning to agree on one thing, reducing principals on underwater loans could save the continually growing number of foreclosure filings. The U.S. housing crisis needs answers and solutions for people suffering from financial hardships due to economic failure. Reducing the principal amounts on homes that are no longer worth the value they were 5 years ago could help thousands of homeowners.
The principal amount of a home loan is the base amount owed, not including interest. When an economic recession takes over however, greatly reducing the value of a home's worth, than the base amount of that loan no longer represents a current buyer's initial investment goal, thus causing the loan to be "underwater."
“Principal reduction is the only answer,” says Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group L.P. Investors and housing market activists are urging banks to lower the base amount of home loans across the country. Not only could this help future investors to improve the market but also help the current problem of people trying to make their mortgage payments every month.
One of the nation's largest bailout receivers is considering this. Isn't that what bailout money was for anyway? Bank of America received $20 billion last year to help recover from a $1.7 billion loss. The U.S. Treasury also stated it would "provide protection against the possibility of unusually large losses on an asset pool of approximately $118bn of loans".
"Everybody's realizing there is a place for principal reductions to a much greater extent than before," says Jack Schakett, a senior Bank of America Corp. executive involved in loan workouts. Restrictions on executive pay were given along with with the bailout money, but corporations such as AIG have continually disappointed American taxpayers by continuing to reward their top executives with millions of dollars in bonuses, despite continued losses, and foreclosures.
"The US government was never going to cut up too rough when the biggest lender in America asked for a bit of additional help in absorbing the losses incurred on Merrill's holding of poisonous assets," BBC's business editor states, referring to what lead to Bank of America's initial downfall.
Months after the bailout however, Bank of America received criticism about their lack of quickness to loan out all of the billions of dollars it received. In a statement released by Bank of America's by Barbara Desoer, president of B of A’s home loans division, she states:
"Despite our aggressive efforts to find solutions for homeowners in default, we must improve our processes for reaching those in need. Additionally, we continue to work with Treasury to find solutions for at-risk homeowners who fall outside the eligibility requirements of the current program as well as the growing number of customers now unemployed. Bank of America has not proceeded with foreclosure sales for customers with whom we have established contact that may be eligible for a modification under Making Home Affordable or our other modification programs."
Source: Wall Street Journal
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Written by Amy Munday
Huliq.com
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