Good News for Homeowners Facing Foreclosure: Cutting Principal Balances on Home Loans Becoming a Reality in Many States


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Lenders are being pressured to cut principal balances on home loans like never before. It’s something that should have happened a long time ago. We’ve been discussing it here on this blog for a couple of years now, outlining in one post 3 specific ways cutting principal balances on mortgages would help to reduce the number of foreclosures; hence, help the housing crisis come to an end.

And, we weren’t the only ones. Experts, eg, a Harvard professor who was an economic advisor to the president, touted that cutting principal balances was the one thing lenders could do to stem the tide of foreclosures.

So, what took lenders so long to reach this all-too-obvious conclusion?

Stopping Foreclosure: Why It Took Lenders So Long to Cut Principal Balances on Mortgages

The official stance given by lenders has been that it would cost taxpayers too much. Proof? Edward J. DeMarco, the regulator who controls Fannie and Freddie, was quoted in The New York Times article, Pressure Grows on Fannie and Freddie to Cut Principal on Loans, as follows:

Mr. DeMarco has resisted principal reduction, saying it would cost taxpayers too much.

So, just how/why does this cost taxpayers? Basically, what happens when a lender takes a loss on an asset (eg, a home), they just pass that on to taxpayers in the form of losses on their balance sheets.

When you consider that many of these agencies/lenders received bailout money, it really is galling that they balk at reducing the principal balances owed on home loans. Taxpayers — many of them homeowners — have ALREADY paid, in the form of the bailout money many of these agencies took to get back on their feet. It leaves struggling mortgage holders shaking their heads in wonder, asking:

Where’s OUR bailout Mr. “Too Big to Fail, So I’ll Take Bailout Money” Lender?

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As we said, this something that should have happened a long time ago. The foreclosure crisis started in earnest around the fall of 2007. This is something that should have been presented and acted upon at least by 2009/2010, because this is when the third wave of foreclosures started to happen.

How the Foreclosure Crisis Unfolded: The Players in the Third Wave of the Foreclosure Crisis

This wave of foreclosure victims consisted NOT Of subprime mortgage holders or speculative real estate investors, but homeowners who had good credit, stable jobs and conventional home loans.

The Perfect Foreclosure Storm

Then, the rececession started to deepen; many lost their jobs, went through their savings and exhausted unemployment benefits. Couple this with the fact that many were underewater on their homes and had ARMs that were adjusting up, then it was a perfect “foreclosure storm” waiting to happen.

Now, one could argue that a fourth wave of foreclosures is happening. Who are the players in this? The mega-rich.

The bottom line is, a lot of this could have been averted if lenders and our leaders in Washington had gotten serious about the foreclosure crisis from the beginning.

Now, it seems they have no choice, thanks to the recent foreclosure settlements. FINALLY, it looks as if the Average Joe is going to see some foreclosure relief.

It’s about damn time!

Related Posts

The OTHER Foreclosure Settlement: You May Be Eligible to Be Paid TWICE – Even If You Didn’t Lose Your Home to Foreclosure

Home Foreclosure Question of the Day: Should Lenders Write Down Principals to Help Homeowners Keep Their Homes

How the Foreclosure Crisis Started: Investors, Speculators, Mortgage Fraud & Lax Lending Standards All to Blame

Home Foreclosure News of the Day: Some States Not Using Foreclosure Settlement Monies to Help Struggling Homeowners

Some Banks are Purposely NOT Foreclosing on Homeowners in Default: Here’s Why

Home Foreclosure News: Was Your Home Foreclosed on in 2009 or 2010? You May Have Money Coming (Or Other Options)

Foreclosure Deal: One REALLY Good Thing to Come Out of It for Homeowners

The Foreclosure Deal: Homeowners Who Lost Homes to Foreclosure Have Money Coming — and More Benefits for Those Trying to Hang Onto Their Homes

5 Banks Settle Foreclosure Lawsuits — How It Can Save Homeowners Facing Foreclosure Thousands of Dollars

Timeline For Foreclosure In All 50 States  

“Cash for Keys” Can Help if You Have a House in Foreclosure & Can’t Afford to Move

Get Foreclosure Help: How to Find Agencies that Will Help You Stop Foreclosure – For Free

Stopping Foreclosure: What the “Produce the Note” Defense Is & How It Can Help You Save Your Home from Foreclosure (Or at Least Stall)

Could Recent Mortgage Law Challenges Mean More Homeowners Won’t Face Foreclosure and/or That They Were Illegally Foreclosed On and Can Keep Their Homes?

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Copyright © 2012 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.

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