Debt forgiveness program and Underwater Loans.

Grabbing the Bull by the Horns
If recent reports are to be believed, some lenders have realized the gravity of the situation and already have taken steps in this regard. Bank of America is a case in point. Taking a cognizant view or a leadership role in regards to this dire situation, Bank of America is working on a model wherein around 45,000 homeowners will receive some reprieve in the form of principal debt forgiveness. Bank of America in turn might have to write-off around $3 billion for this. The benefits will not be extended arbitrarily, rather properties with valuations between 20 to 30 percent higher than the principal mortgage loan will be eligible for this pardon.
Wells Fargo is also doing the same by opting for debt forgiveness to borrowers who are in serious financial trouble. The details however are vague.
What the Government Can Do?
The government is also making some efforts towards mortgage modifications. However, most of these efforts are still in the initial stages and nothing concrete has materialized as of yet. Once the policies and framework are in place, lenders and mortgage companies might take the plunge to accommodate the principal debt forgiveness program. The government however needs to tread very cautiously and the public should be wary about any government broad plans or schemes and should not be clamoring for them to really get involved. If one can recall, Bill Clinton’s Community Reinvestment Act in 1995 allowed lenders to tap into sub-prime market which resulted in the financial crisis that we witnessed. Some say this was a form of social reengineering.
The Only Real Solution
The conditions are precarious, but before they become worse, lenders and policy makers need to step in. The only feasible solution to underwater loans is a principal debt forgiveness program. Till then, God Bless America!

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