Direct Assistance To Borrowers In Default?
This is an incredible article below. To sum it all up what he is saying is “Under current economic conditions, firms lose about 50 percent of the unpaid loan balance on home loans that are foreclosed. On a $100,000 loan, for example, the firm nets about $50,000 from sale of the property less the foreclosure expenses. It would cost the government $50,000 to make the firm whole.
An alternative is to direct government assistance to the borrowers in default by writing down their loan balances. In some cases, the default is not curable even with a balance write-down of 50 percent. In most cases, however, a balance write-down of less than 50 percent will cure the default by making the loan affordable and by increasing the borrower’s equity. At a guess, the required write-down will average 25 percent, which would cut the government’s cost in half.”