Without Principal Reduction — Housing Market Can NOT Recover

by Ken Kappel on September 20, 2011

In order to inform homeowners of breaking news related to foreclosure issues, we often carry article from DSNews.  Carrie Bay tells the story. Read her entire article below, or at her web: “Study: Less Than 3% of Mortgage Mods Involve Principal Reductions.”

Notwithstanding Job Jobs Jobs − the take-away − what you must understand is this:

until the law is enforced, our economy will not − can not − recover.

Yet, and still our(?) “authorities” protect their paymasters − Financial Elites. They are going down. Better educate yourself and join in on the upside, slightly down the road. We’ve had the downside for far too long. Defend your family and home by Confronting Predatory (Illegal) Housing Debt. Read through the brief bit of nonsense below, take it as a lesson. Then be sure to read our final comments at the bottom. It’s all about the education.

“The ratings agency DBRS made mortgage principal reductions the focus of a research note released Monday.”

“The firm’s analysts stressed that as a modification technique, debt forgiveness has long been regarded as controversial in the mortgage industry due to its moral hazard risk and the potential impact it could have on the performance of securitized mortgages.”

“As a result, this particular form of modification has been utilized on a very limited basis so far by mortgage servicers, even with the government pushing servicers to employ it as part of the Home Affordable Modification Program (HAMP), DBRS says.”

“The agency analyzed mortgage modification data from the first quarter of this year provided by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.”

“DBRS found that capitalization and rate reduction modifications made up the majority of loan restructurings, while principal reduction modifications accounted for just 2.80 percent of the total mods performed during the January-to-March period.”

“That figure is up from 1.90 percent of principal-reducing mods over the same timeframe last year, but down sharply from the 5.70 percent reported in the third quarter of 2010.”

“DBRS says investor reactions to the use of debt forgiveness as a loss mitigation tool continues to be mixed among senior and subordinate bondholders.”

“The agency explained that in a traditional debt reduction scenario, the principal forgiven will be treated as security losses and be absorbed first by subordinate holders, many of whom bought securities based on their “interest-only” values and will see these bonds deplete faster than initially anticipated.”

“Senior investors, while losing some immediate credit enhancement, may benefit from such modifications as overall cumulative losses should lessen in the long run, according to DBRS.”

“Even within the senior bondholders’ class, super senior and senior mezzanine investors may disagree on debt forgiveness.”

“Although both are senior bonds, certain senior mezzanine tranches may likely benefit more when principal is forgiven, DBRS said, which would occur if the subordinate write-downs cause the “cross over” from sequential to pro-rata pay among all senior bonds to occur sooner, allowing the senior mezzanine bonds to start receiving principals earlier than expected.”

“But if done properly, DBRS believes that transactions should, in the long run, benefit from principal forgiveness.”

“Although securities average lives may be extended, some borrowers could prepay and cumulative losses could be reduced if the housing market recovers in the next few years,” the agency said.”

“DBRS points to the recent loan mod program launched by Ocwen Financial as a prime example. Ocwen’s program, known as the Shared Appreciation Modification (SAM) program, reduces a delinquent borrower’s principal to 95 percent of the home’s current value, with the caveat that they will share 25 percent of the home’s appreciation with the investor if it increases in value by the time they sell or refinance it.”

“The portion of the debt that is written down does not occur all up-front, but is forgiven over the following three years in three, equal increments, provided the borrower remains current the modified mortgage payments.”

Ken here. All garbage. Without principal reduction to just below current home value market rates, housing values will plummet way below those numbers over the next two years. They keep kicking the can down the road, hoping the Fed will save them.

The Fed is having a difficult enough time saving themselves, and soon, due to continuing global financial meltdown, it will be all to obvious that the Fed will be forced to jettison many Too Big To Fail Banks in order to save themselves; and, the fraudulent “Debt Controlled” fiat money profit system they have profited so greatly from over decades (nay Centuries). Do your part. Get educated. Read:  This Article First, click here.

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