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AP News Video: Bernanke Encouraging “Principal Reductions” YouTube.com
Refinancing a Property whose value is down By Jay Romano The New York Times
March 8, 2008
“Q. I know that with a short sale, a lender accepts whatever results from the sale of a property and forgives the remainder of the debt, but what is a short refi?”
“A. Holden Lewis, a mortgage expert with Bankrate.com, said a short refi is a refinanced mortgage with forgiveness of some of the original debt.”
“For example, he said, if a home has lost value since it was purchased, and the borrower now can’t afford the payments (which is quite possible for people who have adjustable rate mortgages) instead of foreclosing on the property — or agreeing to a short sale — the lender could forgive some of the debt and refinance the loan closer to its current market value.”
“When President Bush signed the Mortgage Forgiveness Debt Relief Act last month, he made it clear that the law was intended to make it easier for homeowners to refinance with debt forgiveness.
Banks should accept mortgage principal cuts
By Barbara Liston Reuters
March 4, 2008
“ORLANDO, Florida (Reuters) - Banks may have to swallow reductions in the principal of some troubled home loans to ward off greater losses that could result from outright default, Federal Reserve Chairman Ben Bernanke said on Tuesday.”
“Warning that mortgage delinquencies and foreclosures are likely to rise, with more declines in house prices, Bernanke called for active measures from both the public and private sectors to stabilize housing markets.”
"This situation calls for a vigorous response," Bernanke said in a speech to the Independent Community Bankers of America, referring to government and private-sector initiatives to slow the rate of home loan failures.” Short Refi’s Coming? By Alan White Consumer Law and Policy Blog February 21, 2008
“A big stumbling block to renegotiating mortgages in danger of foreclosure is the reality that many homeowners now owe more than their home is worth. This situation is sometimes referred to as being "underwater." Servicers of securitized mortgages (prime and subprime) are often willing to write down the amount due on the mortgage if the homeowner is selling (and has a buyer.)
Servicers are much less willing to write down the principal loan amount to the home value to allow a homeowner to refinance with a cheaper or less risky mortgage that will permit them to save their home: a "short refi." The concept of writing loan balances down to market value is familiar in the commercial real estate sector, but seems for some reason more controversial for consumer and residential loans, despite the fact that in many cases a short refi will yield a better return for the investor than a foreclosure.”
“Buried in a story in today's Wall Street Journal is a report that some servicers may start getting strong federal agency encouragement to do short refis. John Reich, director of the Office of Thrift Supervision, regulator of federal savings banks (like WaMu) revealed that OTS is working on a short refi plan.
"Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy," he said.”
FDIC chief floats “Short Refi’s” By Senior Reporter Holden Lewis Mortgage Matters January 21, 2008
“YOU READ IT HERE FIRST: Mortgage servicers should streamline a way to offer refinances that include debt forgiveness, the chairman of the Federal Deposit Insurance Corp. told the Senate today.”
“FDIC Chairman Sheila Bair told the Senate Banking Committee that 2009 will bring a wave of resets and recasts of so-called "nontraditional" mortgages -- interest-only and pay-option ARMs. These borrowers are going to suffer from astounding payment shock.” “Not only will the interest rates increase, but a lot of these borrowers are going to find that they owe tremendously more than their houses are worth -- and suddenly, they'll be forced to pay interest and principal.”
“The solution: Allow those borrowers to refinance those loans for less than the outstanding balances, with the difference forgiven.”
