Friday, March 26, 2010

At Last

The Lehmann Letter (SM)

Today's New York Times carries a front-page article on the Obama administration's latest effort to provide relief for struggling homeowners:

Direct your attention to the following sentence in the article's second paragraph:

"Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs to make their mortgages more affordable."

Mortgage write-downs have been the missing element in the government’s mortgage relief efforts. Thus far assistance has been directed toward interest-rate modification. But interest-rate modification won't help homeowners who face unemployment or whose loans are underwater. If you have a $400,000 mortgage on a home whose value has fallen to $300,000, an interest-rate reduction is insufficient. Only a write-down of the principal's value will provide real relief.

Let's hope this new program's bite is as big as its bark.

© 2010 Michael B. Lehmann

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