In the Corner for Principal Reduction

Read Mandelman Matters for a practical defense of principal reductions instead of foreclosure:
http://mandelman.ml-implode.com/2009/12/the-care-bair-%e2%80%93-fdic%e2%80%99s-sheila-bair-wants-principal-reductions-from-banks-with-loss-sharing-agreements/

Here’s a teaser quote:

“My neighbor isn’t costing me money by having their principal reduced, they’re saving me from having to lose money. They’re not taking money out of my pocket by having their principal reduced, they’re stopping the market from taking money out of my pocket. When my neighbor’s principal gets reduced, I’m the one getting the gift.

In fact, if the bank refuses to grant a principal reduction, and instead decides to foreclose and sell the home at auction, the new sales price will bring down the value of all the other homes on the block.

In fact… the ONLY way I’m not going to lose a good chunk of my home’s value in this scenario is if the bank will reduces the principal balance my neighbor owes on his or her mortgage. Remember, I own the equity… the bank owns the property.

Of course, I realize that the people who are opposed to helping those they consider irresponsible homeowners are upset and would like to see those people punished for wanting a nice house to live in.

I suppose they think that the irresponsible people should have seen that the credit ratings agencies were about to improperly rate bonds, that Wall Street investment bankers would then sell the improperly rated bonds to investor groups all over the world, and that the result would be the total decimation of the secondary mortgage market, which would make it impossible to get credit for anything essentially overnight. (But if they do, then they’re nuttier than a fruitcake.)

I suppose it should have been abundantly clear that housing prices were about to be cut in half over 18 months… after all, everyone else saw all of that coming.

And please don’t bring up some outrageous one-of-a-kind example of an unemployed 22 year-old who loaded up on beachfront investment properties financed with nothing down, stated income, spring-loaded adjustable rate loans… because that’s not what we’re talking about here and you know it.”

Also from Mandelman, read this piece:

http://mandelman.ml-implode.com/2009/12/a-time-for-good-judgement-the-jury-is-in-and-we-need-judges-to-modify-the-way-banks-behave-2/

Okay, just read his whole blog, all right?