The FDIC and Stopping Foreclosures

I have mentioned numerous times that the only person who understands what needs to be done to help the real estate market is the FDIC Chair, Sheila Bair.  It is not a rate of 4.5%, its modifying loans that are in default.  The best plan of action would be to put a borrower in the Hope for Homeowners program which would reduce the principle owed on the mortgage to 90% of the current appraised value.  This program went into effect on October 1st, 2008 but lenders still have not implemented.  The reason lenders want to avoid this is because the government gets the shared appreciation, not the lender.  I don’t know if the lender deserves the shared appreciation but if we don’t allow them any of it they are going to do whatever they can to avoid reducing principle balances.  Although if I were a bank I would rather write the principle balance down, avoid all the costs of going through a foreclosure sale, and bringing down all of the values in and around that neighborhood.  Here is a great article that talks about this from Jack Guttentag, The Mortgage Professor http://finance.yahoo.com/expert/article/mortgage/128271  

 

Here is a link for more information on the Hope for Homeowners Program http://portal.hud.gov/portal/page?_pageid=73,7606147&_dad=portal&_schema=PORTAL