UBS in a recent article published the following recommendations to ease the foreclosure crisis:
"1) It is possible that this "crisis" could be the impetus for more substantive action on principal reduction. Although we are not necessarily advocating this given the myriad derivative consequences, we recognize the debilitating effects of negative equity on homeowner behavior. Whether lenders come to this decision voluntarily or if it becomes a point of "political compromise" remains to be seen. However, we see wider-spread principal write-down as a growing possibility.
2) There could be some sort of foreclosure relief program implemented whereby lenders, in exchange for a future price appreciation clawback provision, grant some degree of principal relief to underwater borrowers.
3) This could lead to a wide-scale "deed-for-lease" program similar to the short-term program currently being used by Fannie Mae. In essence, holders of properties that are slated for foreclosure could take back the deed and rent the property back to the homeowner at a "market rate" with a provision that the deed could be reclaimed at some point in the future when the borrower is financially better positioned. Should this not occur, the deed holder would retain the option to foreclose on, or continue to rent, the property."
I don't understand why the banks have not been more pro-active in granting some of the modifications suggested above. It does not make sense to me for a bank to go through the long foreclosure process ( which today can exceed 18 months ) during which the bank is receiving no interest income at all and then go through the expense of foreclosing on the property, listing it for sale and incurring the expenses of sale, when the best "buyer" for the property is the existing homeowner.
It makes much more sense for the bank to restructure the loan to equal the current market value of the property at today's interest rates which could keep many people in their homes. Many homeowners who are "upside down" on their mortgages where the value of the home is much less than the mortgage balance have decided to do a "strategic default" because they see no sense in continuing to pay on a mortgage that far exceeds the value of the home. Rather than foreclosing, if the bank simply accepts reality and restrutures the loan, they can get a non-earning asset back on track at a much lower cost than foreclosing, selling the property and then relending the sales proceeds at todays market interest rates , and at the same time keep families in their home.
For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.