Banks have been very hesitant to reduce principal on mortgages when the borrower is behind on their payments. 1) Sometimes the bank is only the serivicer and doesn't have legal authority to do so. 2) Once one borrower gets a write down, then every one is going to want a mortgage reduction.
Mortgage servicers included a principal writedown on 4,911 active workouts through the Home Affordable Modification Program since the fall of last year, the Treasury Department said Friday.
The Treasury launched HAMP in March 2009 to provide an incentive to servicers for the modification of loans on the verge of foreclosure. Through May, participating servicers started more than 731,000 permanent modifications and began 1.6 million trials. Servicers completed 32,000 permanent modifications in May, up 11% from the previous month.
In October, the Treasury launched the Principal Reduction Alternative, requiring servicers participating in HAMP to evaluate borrowers with a loan-to-value ratio of more than 115% for a principal writedown
It seems the only reason it part of the ever growing HAMP program.
Major servicers have been reluctant to write down principal without taxpayer dollars. Ally Financial (GJM: 23.78 -0.17%) and Bank of America (BAC: 11.06 +0.91%) agreed to principal reduction programs through state Hardest Hit Fund programs. Wells Fargo (WFC: 28.71 +2.32%) is in talks with the Arizona Department of Housing to do the same.
But representatives at these banks maintain the writedowns will only come on the mortgages they own and at the discretion of their investor.
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