I noted this week, with some amusement, that Realty Times featured an article by Tanya Marchiol, who is said to be a real estate investing guru, which espoused the same Principal Reduction solution that I've been writing about for some time. Perhaps the idea will gain traction, now that a guru is behind it, too.
Tanya does a good job of explaining why investors should be jumping on the Principal Reduction bandwagon and why the banks and other mortgage servicers are holding them back. It's all about the money involved - the fees that the servicers are charging, which is much more if they can ride a property into foreclosure than they would be if the loan were redone to include a principal reduction or even in a short sale. She also re-stated a point that I made in my earlier posts that the banks can certainly afford to take the accounting hits on these underwater loans.
Until this issue is addressed we will continue to have a slow (in some placed stalled) real estate market. The people out at the end of these bad mortgages are the only ones in the chain who can't afford to take the financial hit. So, they are holding on to underwater properties, locked into place by the very mortgage products that were made to look, oh, so attractive a few years back.
Tanya did note that the lack of action in Washington towards this solution is also driven by money - campaign contributions to the major parties and politicians - to guarantee that nothing is done to endanger those fees. It will likely take an uprising of the people even larger that the Occupy Wall Street movement to ween our politicians from the teats of the big money banks.