The New York Times concludes that “The Obama administration needs to step up its efforts to aid the middle class — or the financial crisis will have no end in sight.” The Times proposes a two part solution to the foreclosure crisis; the first being economic stimulus to stem job losses, an argument that holds obvious merit. Their second proposal concludes that “Loan modification programs that reduce monthly payments may not be effective, because the bigger problem is negative equity.” They fault the administration for building a plan that centers on lower monthly mortgage payments while only recommending principle reductions instead of somehow making them mandatory. The Times also criticizes the administration’s anti-foreclosure plan which was recently gutted by the large banks and mortgage lenders.

The cure-all proposed by The New York Times appears to be focused on principle reductions across the board which would be steep enough to restore some equity to borrowers, giving them additional motivation to stay in their homes and allow them to borrow against their new-found equity should a hardship such as the loss of a job or illness occur.

Simply put, an asset transfer from banks to homeowners of that magnitude is never going to happen. From the bank’s side of the ledger, principle reductions would result in massive mark to market losses for the banks and their mortgage investors. These losses would again deplete mandated capital reserves resulting in another round of bailouts that would make the FSA/TARP bailout look like pocket change. On the homeowner’s side, the fact is that if The New York times got its way and lenders were forced to reduce principle to the point where homeowners would again have an equity position in their homes, the next step for many would be “cash out refi’s.” In other words, the equity stripping that factored into the trashing of housing markets like Detroit would occur nationwide. Granted, there might be an unintended temporary boost to the economy but once that was over, homeowner’s would have a larger mortgage balance and monthly payments, ending up in worse shape than they were prior to receiving their gift of equity from the banks. 

By the end of the editorial, the Times is calling for home equity to be restored to homeowners, jobs to be added to the economy, and steady paychecks for all. How banks remain solvent, who pays for job stimulus, and how regular pay checks are covered in this grand plan is left for someone else to answer. The Times does get it half right in that it’s fixing the economy that will finally curb the foreclosure crisis. The big questions again are how and how much will it take?

Having negotiated over 500 attorney driven loan modifications, we realize that each homeowner’s situation is unique and that each modification may require a different approach than the one before it. To that end, we can always call on our 25 years of negotiating, knowledge, and real estate experience to provide the most optimal solutions for each family’s situation. While we are negotiating your loan modification with your lenders our friendly and compassionate team will keep you updated all the way on how the process is advancing.

The people at The Feldman Law Center completely understand the stress of being behind in your monthly payments and the sleepless nights that can be brought on by an impending foreclosure. Rest assured that we will stand with you all the way through the loan modification process and that we are driven to get the best outcome possible for you and your family. If you are struggling with your monthly payments and worried about the threat of foreclosure, we can help. Call The Feldman Law Center today at 800-588-0425 or visit www.feldmanlawcenter.com