I've always said that if you follow housing you follow the economy.

The first step to aiding our economy is to get those homes that are stuck in the foreclosure process to proceed. Once that happens, then there is no question as to the status of the home in question, and therefore, a more solid value of the home can be obtained. When values are established, the market can then stabilize and the economy can get back to humming.

At what level of value that stabilization occurs is anyone's guess, but it will probably not thrill many folks.

Bank Foreclosures

However, in order for this process to proceed, a step needs to be taken. Last fall it was deemed many banks improperly foreclosed on many homes and a settlement with these banks needs to be reached. Recently, bank regulators say there were only a small number of borrowers who were not foreclosed on properly. Once that is settled, the regulators want to re-start the process of either continuing with foreclosures or modifiying mortgages.

The Obama Administration wants to push through a settlement regarding the mortgage servicing breakdowns so the process can begin. This would make some of the largest banks modify loans to the tune of some $20 billion.

Types of Mortgage Modifications

Usually, modifications took the form of lowered interest rates or extending the terms of the loan. These modifications, however, will take the form of reduced principal. That would be cool for those homeowners. One of the issues is, which borrowers will win? On top of that, some borrows may see this as an opportunity to stop making payments so they can receive a reduction of principal.

Likewise, it will be difficult to get approval from banks to make the modifications to begin with.

If you received a reduction of pricipal on your mortgage, which would be a windfall, what would you do with the extra dollars that didn't have to go to the mortgage company? 

CategoriesCredit & Debt