Mortgage and real estate market aficionados continue to debate how to fix this bone-chilling mess. While the back and forth is going on the government has taken a leading role in actually doing something. It had to act because the private sector - let's call it Wall Street - ran itself to ground, effectively scuttling the chance it could be of any help. Despite plenty of initiatives to stem mortgage foreclosures Washington has had limited success, however, in turning things around.
It seems that identifying the real problem has been botched, to put it bluntly.
So argues a seasoned MBS, or mortgage-backed securities, analyst from Amherst Securities. Up to now efforts to prevent mortgage foreclosures through loan modifications have generally been focused on lowering the payment via lower interest rate and extending the maturity date. That, of course, has only had a marginal impact at best on the problem, as everyone knows now.
The energy should be spent instead on solving the negative equity - or underwater - headache, she asserts. Principal reduction on first mortgages should be back on the table, despite the fact that a bill allowing bankruptcy judges to do that was just recently tossed in Congress. The other key concern is the second mortgage. Investors in them have been dragging their feet in dealing with loan mods, often flatly refusing to go along with any reasonable proposals. First or second mortgage holders still are slow in accepting the uncomfortable truth that giving up at least some principal would likely be to their benefit. Coping with the costs of fixing foreclosed homes and paying taxes, attorney's fees and real estate agent commissions can pile up over time and put a genuine dent on the bottom line. Near as anyone can tell, bankers do lose sleep over that.
Las Vegas valley - with Henderson, Southern Highlands, Silverstone Ranch, Summerlin, Anthem, Rhodes Ranch and Mountains Edge among its communities - mortgage borrowers know all about being underwater. Increasingly they are walking away from their homes, leaving their lenders with an asset that will bring them much less than owed on it in a foreclosure sale. Besides, now they have a vacant property in their hands to maintain. Lenders have been faithfully praying for a quick housing market turnaround here and throughout, but it's still many moons away. They need to wake up to the real world.
Perhaps the government can lend a hand here. Nobody wants to lose money, that's for sure. If mortgage lenders were to write off the loss of principal reduction all in one shot, good many of them would be wiped out just like that. This is where Washington comes in. It, the regulators there, could allow the loss to be phased out over a number of years; whatever, five or eight or ten years. That predictably would save the mortgage lenders and investors by giving them time to tidy up those ugly balance sheets. An incentive like this just might be the game breaker that's now needed.
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