The states and federal agencies established that the servicers have done wrong – through improper lending practices, improper foreclosures, etc. – and in response the banks have agreed to a settlement that helps many homeowners who have been hurt by misconduct in the marketplace.
Some banks have already acknowledged that mortgage resets can be effective tool in stabilizing the housing market and have already been forgiving portions of some loans. The idea is to keep people in their homes. The banks lose, on average, about $60,000 on each foreclosure. It is a win-win proposition for the banks to give up some principal – instead of that $60,000 cost of each foreclosure – and allow people to remain in their homes. As a matter of pure economics, principal reduction is often better for the bank than the massive losses associated with foreclosure.
The huge number of foreclosures impacts all of us: nest eggs erode, families may no longer borrow against their homes, and they can’t sell them when they need to. Mortgage resets is one of the tools they AsG negotiated to help keep more people in their homes and help stabilize the housing market — which helps everybody. It’s true that mortgage resets at this level is extraordinary. But so is the mortgage crisis, which affects families, our neighborhoods and our economy. Big problems require big solutions.