Should We Require Lenders To Modify Toxic Loans?
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Mortgage interest rates are down at this writing, well below 6 percent.
In such circumstances it certainly makes sense for borrowers with exploding ARMs to refinance into stable, fixed-rate mortgages.
But many such borrowers have loans where mortgage balances have grown while home values have fallen. Many toxic loans require huge prepayment penalties. Most borrowers with such mortgages can only refinance if they bring cash to the table, cash they don’t have.
We also have borrowers who paid soaring mortgage costs but skipped other debts. Now with damaged credit, they no longer qualify for the best mortgage rates.
What can be done? Lenders had no trouble changing traditional underwriting standards when it meant big profits, now they’re using ignored standards to lock borrowers into high-cost loans. Surely borrowers with significantly-lower monthly payments are a better risk than borrowers who are slowly drifting into bankruptcy. And certainly lenders are best served avoiding the big costs represented by foreclosures.
But what if lenders are not responsive to new marketplace realities? Then one very-real possibility is that an inflamed political process will impact the financing arena in a way that will comfort no lender.
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Published originally by Realty Times on January 30, 2008 and posted with permission.
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