State Officials Demanding Banks To Reduce Loan Principle

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Jan 20^th, 2010

 

A group of state officials who have been working together for the past 2 years to stem the wave of foreclosures, gathered round on January 20^th to put forth ideas suggesting ways to prevent more foreclosures. They proposed to cut loan principal for borrowers whose home are worth less than the mortgage owed, addressing the arising problems of option adjustable rate (ARM) mortgages and reducing red tape or the number of documents required for the loan modification process.

 

The Obama administration including loan servicers are pressured by state attorney generals and banking regulators to enhance their efforts.

 

Iowa’s attorney general, Tom Miller says that potential foreclosures are accumulating. The efforts of servicers need to be more efficient, effective and timely.

 

Under the government program, qualified borrowers can get their mortgage payments reduced to no more than 31% of pre-tax income. Till date, the program has assisted 66,500 people while 787,200 homeowners are still in trial modification.

 

Reducing Loan Principal

 

In addition to reducing interest rates and extending the terms of the loan, state officials are now urging servicers to cut the loan balances of struggling homeowners who have seen their home values plummet. State officials believe that by reducing the loan principal, many homeowners on the brink will likely not default and avoid foreclosure.

 

Addressing Option ARMs

 

More than 40% of these Option ARMs are delinquent. It is important for servicers to address this problem now as many homeowners will adjust to higher mortgage payments in the next 2 years. By addressing these loans now, servicers can help many from falling to foreclosure.

 

Reducing Red Tape

 

Many homeowners have not transitioned into permanent modifications because they have not submitted all the required paperwork. State officials have proposed for the Treasury Department to reduce the amount of paperwork required of borrowers to file and to accelerate the launch of a central portal where homeowners can submit forms electronically. This new central portal is set to launch by the end of March 2010.

 

States’ Expansion of Counseling & Mediation  

 

The states have also put forth some ideas to expand counseling and mediation programs. These efforts require both homeowners and servicers to meet before wrapping up the foreclosure process.

 

States are also proposing for Treasury Officials to amend the government program so that foreclosure proceedings will be stopped once a homeowner applies for the government program. Currently, a sale can only be stopped whenever homeowners apply for Obama’s program.

 

They are also urging for Treasury Officials and servicers to do more to help the unemployed. Due to the poor state of the economy, many homeowners with good credit are falling behind in their payments. 

 

 

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