Loan modification and refinancing programs launched by President Obama’s administration are not enough to stop the continued growth of foreclosed properties for sale, according to Boston Federal Reserve economists Paul Willen and Christopher Foote, University of Geneva Professor Lorenz Goette and Atlanta Federal Reserve economist Kristopher Gerardi.
They argued that borrowers are defaulting on their monthly payments not because of high mortgage rates but because of job loss and the decline of home values.
On the website of Boston Federal Reserve, the economists called for policies that solve the causes of large numbers of foreclosure properties, such as job loss.
Instead of mortgage modifications, the economists recommend the replacement of lost income through grants and loans and provision of rental assistance to chronically troubled homeowners.
The economists released their report to challenge endeavors by President Obama’s administration that put too much stress on loan modification and refinancing to solve the problem of foreclosure properties.
In the Senate, legislators are debating the proposal to authorize judges to order lenders to modify the mortgage loans of people filing for bankruptcy. Proponents of the reform argue that borrowers can save their homes from becoming foreclosure properties if the monthly payments are reduced through loan modification schemes such as rate reduction, extension of payment period and reduction of the loan balance.
Moreover, the economists also want to extinguish the popular idea that modifying the terms of mortgage loans can extinguish the problem of foreclosure properties. They assert that policies focusing on loan modification and refinancing face numerous hurdles, delaying the resolution of the crisis caused by unprecedented numbers of foreclosure properties.
Another argument they use is the relatively low number of loan restructurings completed to date. The economists said most investors have been rejecting loan modifications because it is not certain they reduce their losses if they do not undertake foreclosures. They said that analysts did not consider several crucial factors when they estimated a total of $180 billion that investors will gain if they agree to loan modifications rather than foreclosures.
In addition, the economists said investors lose money if they restructure mortgage loans for homeowners who would have paid even if the loans were not modified because they really can afford to pay and are really able to prevent foreclosures. Also, they lose money when borrowers whose loans were modified will again default, since the reasons for their troubles, such as job loss or inadequate income, have not been solved.
Author Resource:-
John Cutts has been educated in the finer points of the foreclosures market over 5 years. Read articles about foreclosures information at ForeclosureDeals.com - Your online source for foreclosed homes.
![[Valid RSS feed]](http://www.realestateproarticles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites