If Big Business can do it why can’t the little guy?
by: admin on: March 19th, 2010
I’ve spent quite a bit of time traveling the country teaching Non-Profit housing counselors and others how to help homeowners stay in their home when possible. Usually we talk about all of the retention options to stay in the home and when transition, or Moving Out, is the only option then we deal with that as well. Most of the counselors that I come in contact with think the banks or lenders are very inflexible when it comes to dealing with their clients. It appears to be very hard to get the type of modification needed to enable the homeowner to stay in the home without a serious examination of the value of the property and the consideration of a principal write down (reducing the unpaid principal balance down to an amount that is manageable for the homeowner given their current financial condition). Lenders don’t like going down this road as evidenced by the lack of language in the Making Homes Affordable program that would allow for this type of modification to a loan in addition to changing the interest rate, extending the term, or some combination. In many cases homeowners realize that they cannot afford the home without some type of principal write down to bring their mortgage balances and payments in line with the economic realities of the day. I agree that this is very controversial given the fact that everyone who has a mortgage has signed a contract that they must adhere to but more and more homeowners are “strategically,” walking away from what appears to be in untenable situation with no real upside. Arizona law professor Brent White has been making a very academic argument for the business decision behind everyday homeowners strategically defaulting on their loans in order to compel the lender to come up with more reasonable alternatives to their current mortgage payments so they don’t have to walk away from their homes.
“I’m all for a society where people must take personal responsibility, but that should also apply to the banks and financial institutions.”
An article on Professor White from the Arizona Republic is below. I’ve also attached a direct link to his 50-page discussion paper on this topic. Very interesting reading.
