Tuesday, March 15, 2011

Foreclosure Settlement Plan Might Make Matters Worse

The proposal federal officials and state attorneys general that includes a $20 billion settlement with mortgage companies raises a number of questions and potential problems, according to an editorial in today's Washington Post . As flagrant as the mortgage companies' procedural violations might have been, they did not actually cause many foreclosures, according to the editorial. It is also not clear why anyone who was not foreclosed on should get the money and the proposal might help people with negative equity avoid foreclosure - good for borrowers, neighborhoods and even banks, which avoid the hassle and expense of repossessing distressed property, according to the editorial. The prospect of qualifying for a principal reduction might induce some borrowers to engage in strategic defaulting.