Plan to Help Troubled Homeowners Makes Headway At the Cost of Lenders

Los Angeles Times (12/11/08); Hong, Peter Y.Rep. John Conyers Jr., D-Mich., introduced a bill in the House on Dec. 10 that would allow bankruptcy judges to modify the mortgages of struggling homeowners. The Mortgage Bankers Association, the National Association of Home Builders and other industry groups lobbied for the removal of a similar proposal from the federal financial stimulus bill, but the NAHB has signaled that it is no longer opposed to having courts reduce payments and principal for homeowners. MBA has argued that forced mortgage write-downs would inflate interest rates by as much as 2 percentage points for all home loans. In California, monthly payments would rise by hundreds of dollars, according to MBA.

My concerns are for those lenders/servicers that do everything they can in order to work with the borrower(s) and proposing modifications to have some borrowers make 2 successive payments and then fall behind again. At some point, the regulators need to identify when the borrower's financial circumstances have changed in which they can't afford their living expenses and allow the lender to force liquidiation. If the regulators keep imposing tighter controls on how lenders manage their risk, then our credit markets will continue to shrink.

At some point, the borrowers need to be included in the blame of the housing collapse as well.