Loan Modification Better Option than Foreclosure Banks Told

Banks are being told that mortgage loan modification is a better option than foreclosure. The heat is on banks and their foreclosure practices as Bank of America and JPMorgan Chase face two hearings in Congress this week.

Banks will come under pressure to adapt loan modification as a way to keep borrowers in their homes rather than foreclosure and eviction.

The hearings come following the foreclosure debacle in September where sloppy paperwork processing and robo-signing led to illegal foreclosures. Public anger has risen against banks and their foreclosure practices after receiving billions in taxpayer bail outs after the mortgage bubble burst.

Democratic Senator Tim Johnson said, ?Foreclosure should be the last option and we need to examine barriers to mortgage modifications.? Johnson is expected to lead the Banking Committee next year.

In October consumer activists and some lawmakers called for a national moratorium on foreclosures. But fears of further depressing home sales and economic growth outweighed the call. The mortgage mess will invariably hurt bank profits. Sales of delinquent properties will be delayed and hefty fines for violating banking regulations are also possible. Banks will also be faced with multiple lawsuits both from investors and homeowners.

If investors succeed in getting banks to buy back billions in misrepresented mortgage securities
the damages could exceed the net worth of some banks.

Obama?s Home Affordable Modification Program has helped few homeowners had and banks do not want to lose money by reducing the principal owed on loans. But some experts believe it is time for banks to rethink their position and accept mortgage loan modification with reductions to the amount they are owed.

Federal Reserve Governor Daniel Tarullo said, ?It just cannot be the case that foreclosure is preferable to modification ? including reductions of principal ? for a significant proportion of mortgages where the dead-weight costs of foreclosure, including a distressed sale discount, are so high.?