Political Pressure is on to Cut Principal Balances - From Your Orange County Loan Officer

I have bloged about this subject before and the political pressures to reduce principal balances for those severely underwater.  As we know in the real estate profession, value are up and down just like the stock market.  Sometimes we are in the black and others in the red, but we just wait out the ride, as it is our homes and the American Dream!  The difference this time is that the numbers are staggering for those underwater.  We have not seen these numbers in the past and then there is also the creative loans, from negative amortization to ARMS that are adjusting.  Coupled with the job market and homeowners unable to make mortgage payments is just adding fuel to the fire, and I am only naming a few.

Executive from the nation's four largest banks - Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase - pushed back against that pressure Tuesday at a House Financial Services Committee hearing. They argued to lawmakers that reducing mortgage principal only makes sense for a handful of borrowers with high-risk loans, and that a large-scale principal forgiveness program could have dire ramifications for the future of housing finance and consumers' access to credit.  Aren't we already experiencing this with loan modifications?

I do realize the implications to the banks, and millions upon millions of phone calls they would receive if this flood gate is opened.  I do believe their phone systems may just shut down and that their is just not enough staff to handle picking up  phones all day, maybe a way to create more jobs?  A new stimulus package?  I can easily take a leap to loan modifications and how unsuccessful they have been on a large scale.  It would probably be a similar situation, few are helped as many applications are submitted so they can all hurry up and wait, and wait and wait as many banks still see profits up to 40%.  Did you know the average business in the US is lucky to show 10 to 15% profit!

This pressure to reduce principal balances will continue on a political level as it is also a means to force the banks to modify more loans.  As we know, this issue is not dead!