As we discussed in last Thursday’s post here, Stopping Foreclosure: Obama Administration Considering Forcing Banks to Modify Home Loans – What It Means for The Average Homeowner, the federal government FINALLY seems to be not only going to bat for the average homeowner who’s trying to prevent foreclosure, now they seem to be putting some muscle behind that bat.

What do I mean?

In yesterday’s article on Businessweek.com entitled Attorneys General Push for Loan Reductions, Seek Bank Accord, some common sense regulation seems to be coming down the pike.

Note: The reason I keep repeating the word “seem/seems” is that until it’s actually written into law, it doesn’t mean a hill of beans.

But things do “seem” to be moving in the right direction. Following is what legislators are looking at forcing/advising banks to do now to help homeowners avoid foreclosure.

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Stopping Foreclosure: U.S. Attorney General Pushing for the Following that Could Significantly Increase the Chance that Many Homeowners Will Prevent Foreclosure

Home Loan Help: Banks Told to Give Principal Reductions

This will definitely help homeowners who are underwater.

What is a Principal Reduction?

In case you don’t know, it’s when a lender agrees to “forgive” part of the outstanding balance on your loan. That’s right — you don’t have to pay it back. For example, if you owe $150,000 and your home is only worth $120,000, your lender may give you principal loan reduction of say $20,000, meaning you only have to pay back $130,000.

While this is still above what the home is appraised for, what it does is reduce your monthly payments because then any mortgage modification you receive will only be based on the new balance owed of $130,000, NOT the original $150,000.

One homeowner I know of received just this kind of principal reduction from Bank of America, her mortgage holder.

According to the Businessweek.com article mentioned above, it really boils down to the following:

It’s a question of will enlightened self-interest prevail . . . The compromise to modify loans in the right situation is economically very much in the interests of investors and owners. . . . investors agreed to principal reductions during the 1980s farm crisis, knowing that a partial payment from distressed landowners often would yield more than a foreclosure.

Home Loan Help: Banks Not to Foreclosure While Modification Process is in Effect

Many homeowners during this foreclosure crisis have said that they thought they were well on their way to modifying their home loan, only to find out that they were being foreclosed on. The proposed legislation would put a halt to this practice, meaning that a bank could not foreclosed on a homeowner as long as they were in the modification process.

Furthermore, the legislation seeks to ensure that if you are finally and formally denied a mortgage modification, you have to be notified in writing.

Damn common sense, don’cha think?!

I can’t help but think if this kind of common sense had been used when this whole foreclosure crisis started, we might be much further along the road of getting out of it by now.

What do you think?

Home Loan Help: Lenders to Assign One Rep, Not Have Homeowners Talking to Every Single Employee

Another problem many homeowners trying to stop foreclosure complain about incessantly is that every time they call, the speak with a different person and have to go through their whole story over and over and over again.

Oftentimes, they have to resubmit paperwork – again, over and over and over again. It get lost, misfiled and/or assigned to another rep, and the process repeats itself.

Can you imagine what this does to a worried, stressed-out homeowner who’s trying to save the roof over her head for her and her entire family?

The following is from a distressed homeowner trying to prevent foreclosure in the forums over at LoanSafe.org. It kind of sums up the experiences (and frustrations) of most homeowners in this situation:

July 14: 2010: I just went through the same thing, they declined the modification due to the lack of documentation. I told the rep exactly what documentation the previous rep (which I gave the name and ID number of the rep) told me to send in. It did not matter. Now they are reviewing me for the . . . Modification. So let see. I have been going through this since November 2009. I am ready to just give up, it’s actually taking a toll on my life.

The proposed legislation will hopefully put a halt to these kinds of situations this by requiring mortgage holders and servicers to give homeowners a single point of contact. This would prevent a lot of this back and forth and lost loan modification paperwork.

Heck, even prisoners get this (in the form of a parole officer) when they’re released. It’s about time law-abiding homeowners received the same treatment because what most have received so far will make them want to commit a crime, ya think!?

Home Loan Help Most Homeowners Desperate Want: Permanent Home Loan Modifications

This is perhaps what most homeowners trying to prevent foreclosure have been clamoring for more than anything else. Many don’t mind paying more for their homes than the market says they’re worth. After all, most want to do the right thing.

But, when you don’t know if you’re going to be able to afford your home in six months or a year after your current home loan modification works out, it kinda makes you go, “What’s the point?” And, this is exactly why many have done the jingle mail walk (ie, walked away from their homes).

While the proposed legislation can’t “make” banks give permanent home loan modifications, it can “make” them see the prudence in doing so by NOT giving fines for other alleged/perceived offences in this whole process.

Good ole blackmail . . . it’s how things get done in Washington.

Can we send up a collective hallelujah that it works this time because homeowners trying to prevent foreclosure are at their wit’s end – and many of them are choosing to just walk away. And, a lot of good THAT does for this housing crisis.

Related Posts

Stopping Foreclosure: What to Do When the Bank Refuses to Accept Your Mortgage Payments & Tries to Escalate the Home Foreclosure Process

Right of Redemption Laws: How to Get Your Home Back – Even After It’s Sold as a Foreclosure

Underwater On Your Home? Filing Chapter 7 Bankruptcy? Should You Reaffirm Your Mortgage?

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

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

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Copyright © 2011 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.