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Thursday, September 18, 2008


Doug Jones

Loan modifications, even with pricipal balance reductions, are almost ALWAYS the least cost
workout option for the investor as compared to short sale or foreclosure.

The point is that the loss has ALREADY occured... it just hasn't been realized in an accounting
sense. Congress should act to allow the servicers to quickly make decisions that are in the
best interest of the investor, including loan modifications with principal balance reductions
where that maximizes the Net Present Value as compared to the other options.

If we don't have widespread loan modifications quickly, then we will soon be in a self-feeding
negative sprial in home values because new bank REO will exceed total sales. That will happen
in California starting in OCTOBER (next month).

Loan modifications not only minimize the cost to the investor, but they keep the home off the
market and out of that inventory overhang that is driving home values relentlessly lower.

Also, they are a market solution... they don't cost the taxpayers a dime.

Santa Ana, CA

Tux the Penguin

I think you are far to willing to overlook the huge moral hazard that writing down the mortgages would make (not to mention the tax effects of being released from that liability...).

But aside from that horrible problem, I don't think the write-downs should be so easy. I list of conditions that should be attached.

1. You must qualify for the new mortgage based on your income, 25% rule and all that "traditional" mortgage logic.

2. The mortgage should reset. You now have a new 30-year mortgage. IE, you have no equity until that first payment clears.

3. The bank should be allowed to put a lien of some kind on the house to collect any sales price in excess of $200,000, up to $100,000 (to collect what they wrote-off).

I could go on, but I think you all see my point. But that'll never happen.

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