Answering Bernanke's call for 'forgiveness' from Bankers...

A recent speech by Fed. Chairman Ben Bernanke directed bankers to be proactive in their search for solutions to help consumers save their homes from foreclosure...even if it means a reduction of principal and taking a loss. While we all agree that something has to be done to slow the sharply increasing starts of foreclosures in America, asking banks to foot the entire bill doesn’t seem like a feasible solution in and of itself. 

Reduction of “principal” for homeowners so they may sell their homes at a lower price than what they owe is precisely what will cause home prices to continue to fall and our neighborhoods to continue to fragment.   The largest reason why foreclosures are up so drastically nationwide is due to a real estate market which has heavily depended on at worst, a slow and steady appreciation in prices. 

Since 2005, many parts of the country have seen just the opposite and are at double digit market depreciation of housing prices. For that reason, I think allowing more people to discount their homes so they can “escape” their mortgage would exacerbate things further. We would see a larger inventory supply of homes and with less demand due to the tightening of underwriting guidelines for mortgages.

Part of the solution needs to come from lenders finding creative ways to keep their customers in their homes thus maintaining more stability in our nation’s neighborhoods. Maybe it means they have to modify some of the notes on their books by allowing those people with ARM’s, Subprime, or even A-paper loans who are in trouble to restructure their mortgages in order to stay put. Part of the qualification for doing so could be some form of lender paid “consumer counseling” classes requiring completion. 

This solution is going to have to be a collaborative effort on the parts of all parties involved and can’t be the result of the banks just giving in. What are your thoughts on these recent comments by Chairman Brenanke and what do you think can be done to deal with these issues.