The foreclosure solution banks hate
Ann Brenoff, Real Estate AOL - The loan modification programs have been a joke. You have a house that has tanked in value and the best the banks can come up with is: a plan where they sort of delay what you owe long enough for you to get back on your financial feet -- if that -- based on the flawed logic that the housing market is certain to improve in just a matter of months.
The real answer for what ails us is a Third Rail solution that banks don't want to touch: Erase some of the amount we borrowed, a process known as a principal reduction. To do so would share the burden of the housing crash with the lenders who helped create it. It would also allow us to get on with our lives, and, according to The New Bottom Line, save the economy in the process.
Banks would rather poke out their proverbial eyes with sharp sticks than offer principal reductions. Only 2.8 percent of all loan modifications in the first quarter of 2011 involved any actual sort of principal reduction, according to the ratings agency DBRS. And that number is actually up a full percentage point from the same time last year.
But some analysts believe that the industry-wide reluctance to perform principal reductions on a wide scale is actually what is holding back the housing recovery. . . .