Loans are Bank-Friendly, Not Borrower-Friendly

Even though there are signs of hope in the economic recovery, the housing market still has a long way to go. Of the 55 million mortgage holders in the US, industry experts predict that as many as 10 million will default by 2018. While there have been some attempts by the government to reduce the burden on the mortgage holders, all it really did was extend payments or reduce interest rates, not address the crux of the problem, “unsupportable debt loads.”

Experts explain that investors are out up to 70% when homes are foreclosed upon. But when the total amount owed is reduced by a quarter, there is a much lower risk of foreclosure. “If you save a borrower, you save an investor.”

Mortgage holders Fannie Mae and Freddie Mac will not entertain any kind of principal reduction – they are refusing to take the immediate write downs that would be required, preferring to delay the financial hardship in exchange for a potential rebound. “Many servicers refuse to consider them because their fees are tied to the amount of principal rather than to the ultimate payback to investors. And banks often hold second mortgages for the loans that they service. Principal reductions typically require them to take total losses on those notes.”

Today’s rules do not favor the investor or borrower, but are very advantageous to big banks.

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