Proposals to Reduce Mortgage Principal

Posted by Sara M. Varese

The following proposed plans were designed to help solve further falling prices of homes.

Zandi Plan: A proposal to have banks write down loan balances to help underwater homeowners so that they stay in their home and continue to make payments rather than walking away and not making any payments at all.

Posner and Zingales plan
: An underwater homeowner living in a zip code where home prices have fallen at least 20 percent or more could qualify for a loan modification that would reduce the mortgage by the average reduction of houses in the neighborhood. In exchange, the bank would receive 50% of the average gain if and when the house sold.

Brent White Plan: To teach banks a lesson by walking away or threatening to walk away from their mortgages if banks are unwilling to reduce mortgage balances. In addition, his proposal includes that Congress change the Fair Credit Reporting Act to disallow lenders from reporting mortgage defaults and foreclosures to credit agencies. This way borrowers would be less fearful of getting a credit hit if they walked away, giving more room for negotiation.

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