Playing the Devil's Advocate, I would simply ask if owners were willing to share their large profits when house prices were skyrocketing?

What? Not a chance?

Hmmmm… If my values go South the bank should forgive that debt, but when values increase they shouldn't (and didn't) share in the profits.

It's easy to demonize the banks in this situation. But they have a point. It will effect lending.

Mind you, some banks are working on this very area. But it is their decision not some mandated goverment ruling. A goverment that is just as much to blame for the present situation I might add.

Just a counter thought…

Forgiveness: No.

Compassion: Yes.

Ok, I do believe borrowers should be “obligated” to repay a loan. The borrower made the promise, the bank believed them, contract were signed, money was exchanged, borrower now owns property.

Banks have several choices as it pertains to default. We all know what they are, so I won't labor on with what they are.

Enter “downturn” in economy. Home values drop, jobs vanish, folks can't make mortgage payment.

Enter Compassion: The folks that are truely demonstrating efforts to keep the loan afloat, even though the value of the property is less than the loan amount, should be given a moratorium on a piece of the principal owed.

One idea I heard allowed the banks to reduce the principal amount of the loan to 90% of fair market value of the propertyl, and re-cut the loan payment. Loan docs should be carefully reviewed and those who were fraudlent didn't get the moratorium.

The bank then had the borrower sign a contract wherein the borrower had to pay back the balance upon selling the house. We could say they had to “hang on” to the property for 5-8 years before selling, thus providing the banks a reasonable chance to recupe their losses.

What say you?

Let's not forget who got us into this situation in the first place. It was the Retail Real Estate industry in concert with the Banking industry that MISLED 90% of the buyers/borrowers into these purchases by guiding them into one of the many different variations of “incentive” loans, i.e. low qualifying rate, low down payment, high ratios, stated income, no income verification, interest only firsts and seconds, option ARM's, etc. all along never advising their clients that the inflationary trend caused by the feeding frenzy that resulted would come to an end sooner rather than later, and that it would come to bear directly upon them. As a DRE Licensed Agent, I witnessed this over and over again by other Agents in my office. When I complained to my Broker and the DRE my complaints landed on closed ears. Disgusting. They owe it to these families to take on the responsibility themselves, and restructure these loans to reflect todays value in a fixed rate package, and absorb the losses as any good “CROOK” would accept his sentence. But alas, they won't. They have the greatest “Get out Of Jail Free” card available: Congress.

Short and to the point:
The downward turn in the economy was a direct result of the CRIMINAL actions of Banks. Period. Get it straight. Stop putting the Cart before the Horse.

Nonsense. The real estate industry is NOT a leader this but since pretty much all we have heard so far is how can do is lay blame and shout down any reasonable discussion I am not surprised.

If anything there are multiple parties here to blame. No one group is the ultimate bad guy. Sorry but it was a group effort: banks, goverment, consumers and real estate industry all had a hand. And all created the perfect storm.

Can't just punish one group and think somehow all will be better. And don't forget that the banks are not “those guys”, they are “us guys”. Unless, of course, you keep all you money in a mattress. Then you are excused :>)

Just so you know in 25 plus years of real estate I haven't once done a loan or recommended a particular loan program. That is not my job. And the same is true of most real estate agents I have known over the years. I also don't work for the banks any more than I work for people in foreclosure. In fact, for the past year I have worked a lot more on the consumer side of things.

Were there bad eggs? I sure that there were. Just as there were consumers that committed fraud in order to get a loan. But either is the exception.

Sorry Steven that your office was also an exception. Sound like you are/were working for the wrong company. Have you changed that since?

It's funny but these days offering a thought that might run contrary to the current group think invites attacks. Be nice to see an actual logical discussion rather than an emotional rant.

But I am sure to get ripped for that as well.

Do they have a point!?…. no mostly! If they do approve a short sale, they're actually loosing a lot of their principal balance to whom ever. If they actually forgive the principal to the original home owner they will have their loyalty and the original home owner will probably keep the home for many years to come, helping the industry to heal & recover. Althought, I believe principal balance forgiveness should only be done for those that bought at top of the market or close to it, so it would need to be between certain periord of times. I'm sure there would need to have certain regulations passed on the bank's side and could be complicated and time consuming! – Mirna Orellana, San Diego, CA…”Remember To Be a Servant”

I can't feel surprised that the banks are resisting the idea of principal forgiveness. If they were forced to actually practice that, their bottom line would LOOK bad, which is what they want to avoid, especially since they abetted and encouraged the housing bubble to inflate to the point where few could afford a starter house any more. I am not saying that we don't all bear some responsibility for the situation as borrowers. But could we have borrowed without the banks making it possible? No. So I assign 90% of the responsibility to the banks. They took the money they made out of the shoddy mortgages, and spent some on getting Glass-Steagall gutted by Congress. Bear in mind that this is not just a slam on Republicans, though they certainly deserve a big kick in the ass for their behavior over the years; this situation was created by Clinton's administration as much as any other. And when the banks got the law changed so they could become all-in-one banks that could invest in derivatives, that's what they did to make more money. They became addicted to the big bonus, the greed that means that they paid back the bailout money early solely so that they could pay out billions in bonuses – for what? Competence? Not hardly.
So to come back to the principal forgiveness isssue, they will resist as hard as they can, ANY pressure to perform what they regard as losses on their balance sheets, even though they are still giving out payoff bonuses to their top execs. Get it through your heads, people; THE BANKS ARE NOT AND NEVER WILL BE YOUR FRIENDS!!

I don't know any thing about the thinking of banks, but it , that if they foreclose and it ends up on the auction block, they are going to take a loss anyway, so why not? Plus they could even help out more by extending to loan at a lower rate for another 10-15 yrs
If it were me and the fed's didn't say no, I think 3-5% of something, is better 100 % nothing.loren

Steve:

I would be more than happy to count you as one of my supporters, even if you
are an opponent. We have to get our government back on track. Thomas
Jefferson said, and I paraphrase, this country needs a revolution every
twenty years just to let the rascals in Washington know who's incharge.
We're about 12 revolutions behind.

Great joshing with you.

keep in touch,

Eldee

p.s. When I finish my book, I'll let you read (critique) it. It's about a
7th generation West Point graduate who becomes a general in the special
forces, then President of the U.S. He takes our country back to the
Constitution and brings America back to prosperity. On the night of the
State of The Union address after his second inauguration, he's assisinated.
Now we just have to figure out who did it.

The bank should give a chance for the barrower who are upside down on thier mortgage. I think Principal forgiveness can be the right move. Drive prices down Encourage people to borrow and invest. This will improve the economy.

My family is going through eviction now and we have been trying everything to save our home. We are not dead beats or trying to get out of what we owed, but I lost my job back in 2008 (Auto Industry) and have been unable to find replacement work. My wife is still employed but we could not meet all the payments we owed without my salary, this caused us to go through bankruptcy and then foreclosure. We have found a bonk that will accept us for a loan to buy our house back, but the value of our home has dropped to where we cannot borrow as much as is currently owed. We offered both our first and second mortgages a portion of what is owed. The second agreed but the first declined our offer, the first would accept nothing more than full redemption unless we had a third party buyer to buy the property, which they would have accepted. To me this policy is not helping the people who need it most. I'm not faulting the real estate investors that are scooping up cheap properties to sell later for a profit but when a family that needs this kind of help is refused and they are willing to let another person come in and buy it for the same offer that is just sickening. Something is definitely wrong with the system and the help that the government promised to the people who were in trouble. Now our bank has offered to help us no matter if we have to purchase a new home, but of course we would love to stay in our home as anyone else would. If you agree with me that this policy is wrong then vote thumbs up, otherwise vote thumbs down. Thank you for listening.

There are two things you are wrong about:
1) We have the cash from a local bank that is taking a chance because they know us personally and know our situation, they are giving us the money just not enough to payoff in full due to the the value of the property.
2) Your not doing the people a service if they have the same chance we have, for a lender to say no we will not accept your payment but we will from another borrower who is not related to and does not represent your interest for the same amount or less than we have offered is WRONG!

You are right that we needed both incomes to maintain our payments and I'm not blaming anyone but myself for getting into this mess, But when I have the money and present them with proof of funds and they deny it due to the fact that we are the ones who defaulted. Do they or you the investor care who was in that home before? The family with two young children that lost a job when people like you looking to make a better profit margin decided to send so much work to China and India, not realizing or not caring for what it would do to the people back here who rely on those jobs.
You can say what you want to provide yourself some comfort that what your doing is helping out. But in fact you are helping to put people out in the street. The time is coming when the poor lower class so out number the rich upper class in this society and the injustices are so great that those lower class people decide it's time for a change. When that happens which side will they believe you to be on?

Their is a group in Florida that is doing the same thing you are and at least they have the courage to say what they are doing with the name they give themselves – Condo VULTURES!

Now I am not saying you're doing all bad or that what you do is so evil, so where you are doing a service for the industry is when people have vacated the property and decided to give up the fight to stay in their homes or people who are actively destroying the property, then yes buy that house and flip it before it deteriorates due to no one living in the property. There and only there is where you are doing a service to the industry.

Banks “sucked out our equity”? Let's see…several years ago, and you will agree, real estate was appreciating like crazy, right? The market was pricing most 1st time home-buyers right out of the market, right? So, the government (read: “our politicians”) decided it was time the not-so-fortunate had a shot at home ownership, Enter the low-no-qualify loans. This actuall made buying a house even simpler for more and more people, and guess what, it did, and…it caused the price of homes to jump even further.
Now 3 years go by, and guess what…those ARM's are starting to click and turn up. Now guess what…people can't afford them so they decide to quit paying the bank. And the rest, as they say, is history.
The banks are partially to blame and I agree they need to pay. I also believe the “borrower” should also pay for not acknowledging the fact that they were looking at a huge bump in payment 3-5 years down the road and knowing there was no way they were going to be able to afford it. Betting on the continued appreciation to get them out? Results: Backfire!

Honestly, there is more to this than the obvious when banks accept a lower price from a person off the street rather than reduce the principal in order to keep the resident in their home. Probably some tax loop somewhere that rewards banks for creating a new paper trail.