What's behind curtain no.1

I find it rather disturbing when our top executives, politicians and other top officials try to sugar coat critical issues. With that said, I ran across an article which explains the so called modification program, what’s very interesting is; when this program was initiated it was intended to help those struggling with their current over priced mortgages.  The program was designed to prevent foreclosures and lower rates.  “Well, here we have the old bait and switch again". Of course it’s nothing new since the announcement of this program, but I would like to know who is really calling the shots, is it the banks, or the government? How can the banks say we will do what want, when the government is the author of the program?

The last thing that lenders want to do is forgive debt. Last month, executives from the four biggest mortgage servicers testified before the House Financial Services Committee, and all of them made it clear that they would exhaust all loan-workout options before considering debt forgiveness, which in banker lingo is called "principal reduction."

An executive for Bank of America told the committee that his bank would consider debt forgiveness for people who already are in the process of foreclosure. A Wells Fargo executive, Mary Coffin, said, "We have found that the same affordability can be reached through a 2 (percent) to 3 percent interest rate reduction and term extension, as can be reached through a 25 (percent) to 30 percent principal reduction."

In other words, Wells would rather reduce the interest rate for five years, and extend a 30-year loan into a 40-year loan, rather than forgive some of the debt.

If a lender can be persuaded to participate in Hope for Homeowners, here's how it would work: The lender would forgive all the debt over 90 percent of the home's currently appraised value, and allow the homeowner to refinance with an FHA-insured mortgage.

For example, let's say someone owes $125,000 on a house that has lost value and is now worth $100,000. The owner can't afford the higher payments because of a rate adjustment. The lender would forgive $35,000 of the debt, allowing the owner to refinance with another lender for $90,000. That loan would be insured by the FHA, and would have an upfront FHA insurance premium of about $2,700. In most cases, that $2,700 would come out of the hide of the old lender, on top of the $35,000 in debt forgiveness. Faced with these figures, some lenders might figure that it might be cheaper to foreclose.