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Federal and state banking regulators issued a joint press release today aimed at one of the most frustrating aspects of the housing mess: People are losing their homes because they can’t get a little breathing room from lenders. And lenders say they can’t help because they’ve sold the loans to investors: their hands are tied.
But it seems that the companies that are in charge of servicing the loans (e.g., collecting the monthly payments) may actually have more leeway than is commonly believed to cut deals with homeowners who are in danger of defaulting.
Here’s an excerpt from the regulators’ statement today:
[Servicing] agreements may allow servicers to contact borrowers at risk of default, assess whether default is reasonably foreseeable, and, if so, apply loss mitigation strategies designed to achieve sustainable mortgage obligations. Servicers may have the flexibility to contact borrowers in advance of loan resets.
Appropriate loss mitigation strategies may include, for example, loan modifications, deferral of payments, or a reduction of principal. In addition, institutions should consider referring appropriate borrowers to qualified homeownership counseling services that may be able to work with all parties to avoid unnecessary foreclosures.
Maybe the system isn’t so rigid and unforgiving after all.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.