Short Sales + Principle Reductions = Crisis Over

I’ve argued for a long time now – and will continue to do so until proven otherwise – that short sales and principle reductions are the way out of the mess we’re in. Short sales, for the most part, are now a fixture in the mortgage/real estate crisis vernacular. Principle reductions on the other hand, have remained a term rarely heard in the mainstream and almost never uttered by one of the big four lenders… until now.

Two recent articles broached the topic of principle reductions.

Bank of America will introduce a plan to begin reducing a percentage of mortgages for it’s hundreds of thousands troubled borrowers who are currently underwater and faced with significant hardship, as outlined in an article in the WSJ. While this seems like a PR stunt more than anything else (since those who will actually benefit from this represent a minuscule number comparative to the amount of people this could actually help), it is a step in the right direction that many figured would never seriously be considered.

Another article posted on The Huffington Post, discusses how HAMP has actually discouraged lenders from approving principle reductions. Unlike the move by BofA, it seems like this is an unintended consequence (as the article points out) of a program designed to genuinely help people. Upon realizing this, it is my hope the administration will tweak their current plan and begin instituting real fixes that involve principle reductions, forcing the lenders and servicers who are simply placating their customers at the moment, to jump in with both feet and provide realistic, long lasting solutions…