Here it Comes!: Banks Commence Aggressive Foreclosure Strategy in South Florida

Starting last month, the mega banks began an aggressive campaign to avoid modification, settlements or principal reductions and seek foreclosures before they are forced to modify.

Yes, we can help at livinglies, but the numbers are so high that there is no way we have the resources to help everyone. I am pitching in too, having become attorney of record for some South Florida residents and with plans to open a Florida office. I have arranged for offices in Hialeah, Coral Springs and Tallahassee. Like you, I am tired of waiting for lawyers who get it. I get it and I am licensed in Florida.

Lawyers, accountants, analysts and others should be seeing this as a major opportunity to do well for themselves and for the owners of these homes by challenging the rights of the those collectors who are taking their money now, or demanding payment or threatening foreclosure. Lawyers have been slow on the uptake and in so doing are potentially setting themselves up for future malpractice claims for anyone, whether they aid or not, who received advice from the lawyer that was not based upon the realities of the securitization scam.

Call 520-405-1688, where you can get help in documenting the fraud, help in drafting the documents, and help in finding a lawyer. If you are a lawyer involved in foreclosure defense, bankruptcy or family law, you need to to start studying the real facts and the strategies that get traction in court.

We are planning a possible new South Florida seminar for lawyers, paralegals and sophisticated investors or homeowners. But we will only schedule it if we get enough calls to indicate that the workshop will at least pay for itself. It is a full day of information, strategy, role-playing and tactics to use in the court room.

Editor’s Analysis: Despite loosening standards for principal reductions and modifications, the foreclosure activity across the country is increasing or about to increase due to many factors.

The bizarre reason why the titans of Wall Street want these homes underwater combined with the miscalculation of the real number does not bode well for the housing market nor the economy. With median income now reported by the Wall Street Journal at 1995 levels, and the direct correlation between median income and housing prices you only need a good memory or a computer to see the level of housing prices in 1995 — which is currently where we are headed. As the situation gets worse, the foreclosure and housing problem will become a disaster beyond the proportions seen today. And that is exactly what Wall Street wants and needs — the investors be damned. Millions of proposals far  in excess of foreclosure proceeds have been rejected and forced into foreclosure and millions more will follow.

Wall Street NEEDS foreclosures — not modifications, principal write-downs or settlements. The reason is simple. They have already received trillions in bailouts from the Federal Government. All of that was predicated upon the homes going into foreclosure. If the loans turn out to be capable of performing, many of those trillion of dollars ( generally reported at $17 trillion, which is more than the total principal loaned out to all borrowers during the meltdown period), the mega banks could be facing trillions of  dollars in liability as the demands are properly made for payback. The banks should not be allowed to collect the money and the houses too. Neither should they be allowed to collect the bailout money and keep the mortgages.

The “underwater” calculation is far off the mark. If selling expenses and discounts are taken into consideration, the value of homes used in that calculation is at least 10% less than what is used in the underwater calculation, which would increase the number of underwater homes by at least 15% bringing the total to nearly 10,000,000 homeowners who know now that they will never see valuation even coming close to the amount owed. The prospect for strategic defaults is staggering —- totaling more than 10 million homes  — or nearly twice the number of foreclosures already “completed”, albeit defectively.

Collier County is getting hit hard, as the foreclosure menace spreads. Wall Street wants the foreclosures, needs the foreclosures and is going to get them — unless they are stopped in the courts. Don’t think you won’t end up in foreclosure just because you are current in mortgage payments. They have playbook that will trick you too into a foreclosure. If anyone tells you to stop making payments, watch out!

by Laura Layden,

Foreclosures are trending up in Southwest Florida.

They’ve been on the rise year-over-year since January in Collier County, hitting their highest number in August — at 295 for the month. In August 2011, there were 229 new foreclosures, 66 fewer than this year, according to the Collier County Clerk’s office.

In Lee County, new foreclosure cases have also ticked up, with monthly increases year-over-year since January. They hit a high of 799 in March, then slowed for four months before spiking up again, according to the county clerk’s office. In August, they jumped to 701 — up from 518 a year ago.

Experts say much of the increase over 2011 is due to a slowdown in filings after last year’s “robo-signing” debacle, which saw mortgage holders and their law firms accused of falsifying documents to speed up the foreclosure process. Now, major banks across the country are moving again on distressed properties, following a $25 billion robo-signing settlement in April.

“What we are seeing now is what they bottled up during the robo-signing controversy. They let it loose once the settlement was done,” said Jeff Tumbarello, director of the Southwest Florida Real Estate Investment Association, which tracks foreclosure trends in Lee County.

Wells Fargo, Bank of America and JPMorgan Chase & Co. were among the big banks that halted their filings last year and they account for more than 60 percent of the filings now, he said.

While new filings rose in Lee and Collier counties in August, nationwide they fell 13 percent after three straight months of year-over-year increases, according to a report by RealtyTrac, based in Irvine, Calif.

However, some states, including Florida, saw sizable increases in new foreclosure filings — or starts — last month.

“Bucking the national trend, deferred foreclosure activity boiled over in several states in August,” said Daren Blomquist, RealtyTrac’s vice president, in a statement. “In judicial states, such as Florida, Illinois, New Jersey and New York, this was a continuation of a trend we’ve been seeing for several months now.”

Increases in new filings in Florida and Illinois pushed their state foreclosure rates to the two highest in the country in August. In most “nonjudicial” states, where foreclosures are usually dealt with outside of the courts, activity continued to slow.

According to RealtyTrac’s most recent monthly report released today , there were foreclosure-related filings on 193,508 U.S. properties in August, up 1 percent from July, but down 15 percent from a year ago. The report tracks three types of filings: default notices, scheduled auctions and bank repossessions.

In August, Cape Coral-Fort Myers ranked 14th in the nation for its foreclosure activity. There were 1,255 properties with foreclosure-related filings, up more than 40 percent from July, but down more than 8.6 percent from a year ago, according to RealtyTrac.

Naples-Marco Island ranked 49th in the nation for its foreclosure activity, with a total of 375 filings of all three types.

From January to August, there were 5,359 foreclosure cases filed in Lee County and another 2,007 were recorded in Collier, according to clerk records.

In all of last year, Collier had 2,270 foreclosure cases filed. Lee reported 5,417. It appears those numbers will easily be surpassed within a month or two, if the current pace of new cases continues.

Marc Shapiro, a Naples foreclosure defense attorney, said some homeowners in Southwest Florida who defaulted on their loans in 2011 haven’t been foreclosed on yet because of the delays that happened after widespread robo-signing was revealed.

“The banks just now are getting to the point where they are getting back on track and getting things rolling again,” he said.

Some of his clients, he said, haven’t paid their mortgage for a year and still haven’t seen their lender take action. He said the uptick in foreclosure filings locally can also be blamed on adjustable rates mortgages, known for short as ARMs. The first five years, there’s a fixed interest rate on the mortgages, then the rate adjusts annually, usually upward.

In Collier, Shapiro estimates there are 8,000 to 10,000 foreclosure cases pending.

In Lee, there’s a backlog of 9,677 cases, according to the Lee County Clerk’s office.

In some instances, Shapiro said, big banks are dragging their feet on cases because they don’t want too many foreclosure properties to hit the market at once, which would only drive down prices and demand. If demand and prices fall off, it will only lead to more foreclosures, encouraging more homeowners to stop making payments on homes that aren’t worth what they owe on them, he said.

“There is a lot of buyers,” Shapiro said. “I think the only exception is gated golf course communities, or communities that have high association dues. I think those are tough to sell … because people are getting away from properties that have high monthly expenses on them.”

Michael Puchalla, an assistant director for the Housing Development Corp. of Southwest Florida, a not-for-profit that offers free assistance to homeowners facing foreclosure, said at an affordable housing conference in Orlando this week representatives for Bank of America, Fannie Mae and Freddie Mac reported their 30-, 60- and 90-day delinquencies were down over last year, but there were more borrowers who are more behind on payments by as much as 36 months.

Through Florida’s Hardest-Hit Fund program, homeowners who are unemployed or underemployed and qualify for assistance can get up to $18,000 to catch up on missed payments and up to $24,000 to make a year of payments. The Housing Development Corp. has helped local homeowners sign up for the program, but its federal funding is limited and may run out by the end of the year.

“We definitely like to help people when we can,” Puchalla said.

Connect with Laura Layden at

Foreclosures Up Again: Who Will Turn The Switch Off?

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Editor’s Comment:  

With the settlement out of the way using the office of the attorney general covering all 50 states, the Banks are on the move again, and the number of new foreclosures is rising. But what is readily apparent from the data is that it never really went down and is continuing at the rate of millions of foreclosures per year.

RealtyTrac and others are spinning this as a good thing since it is clearing out the inventory and the rate of foreclosures measured month to month went down. As usual they are trying to distract us from looking at the numbers and using small changes in percentages to say that the housing market hit bottom. It hasn’t hit bottom and it didn’t hit bottom the last 27 times they said it hit bottom. But some people believe it. If you repeat a lie often enough more and more people will believe it.

 The fact is that in any given month more than 200,000 homes are in the process of foreclosure.  That means that in any given month there is an average of 500,000 people faced with foreclosure and eviction, assuming 3 people per household. The fact is that new Foreclosures are staying the course too, with small, meaningless percentage changes. More than 100,000 NEW foreclosures or auctions are being started every month which means that over the next 12 months we will see over 1.2 MILLION new foreclosures. And that is on top of the 5-6 million foreclosures we have already seen.

Compare this scene not to yesterday but to 6 years ago when foreclosures were at a minimum, although rising. If somehow the number of foreclosures shot up to 6 million all at once we would have considered it a national catastrophe, which it is. If we suddenly had 100,000 new foreclosures per month we would have been outraged. If we suddenly had over 200,000 homes in foreclosure we would immediately perceive the threat to our economy and do something about it. 

But our senses have been dulled by the drone of foreclosure and mortgage statistics. And so what was and should be unacceptable has become accepted. Somehow our country doesn’t get the new impending crisis that is hidden for the time being by printing money and the flight of investor money  to U.S. treasury bonds because they look safe compared to what is going on in Europe. And we don’t hear much about the horrendous economic crisis in Europe because politicians here don’t want us to have information that would frighten us into action — like Europe is taking action.

There was and remains only one way, one path to economic recovery. A house built on sand will continue to shift and then fall once it grows large enough. The foundation of our society and our financial system was ripped out from under us. We rewarded the wrong-doing with bailouts and permission to keep on sucking us dry. The origination of mortgages in the securitization market was wrong and illegal. We are prevented from seeking solutions to the housing crisis not because a percentage of loans are in default but rather because of all the derivatives hanging on the same tree — a bad loan, non-complying with law or lending standards that was treated in a bad way and which was funded by wrongful misrepresentations to investors. 

And the banks refuse to cooperate. Small wonder — for every actual dollar in any currency denomination in the world there are more than ten dollars of derivatives being used as cash equivalents on the balance sheets of financial institutions and other companies. This house of cards must fall. It is the Banks that MUST fail, not our society. 

The one and only path to economic recovery is principal and rate reduction. The switch is there on the wall to light up the room, but somehow the moral hazard of the threat from the banks is being hidden by some gibberish about “if you turn the light on then other people will get to see too.” Everyone should see the truth and this madness must end.

A Brand New Troubling Sign For The Housing Market

By Mamta Badkar

may foreclosure map


Despite talk of a housing bottom, new data shows that foreclosure filings jumped 9 percent from April to 205,990 according RealtyTrac’s latest foreclosure report.While the rise in foreclosure activity above the 200,000 mark is worrying, an even more worrisome sign is the rise in foreclosure starts – default notices or scheduled foreclosure auctions.

Foreclosure starts were filed on 109,051 U.S. properties and were up for the first time in 27 straight months on a year-over-year basis (YoY).

Daren Blomquist, vice president at RealtyTrac said in an email interview that the uptick in foreclosure starts is troublesome “because the real estate market has started to stabilize over the past few months, helped in part by decreasing foreclosure activity. This new batch of properties entering the foreclosure process could threaten to destabilize the market once again.”

For now Blomquist says lenders are pushing “smaller waves of distressed loans into foreclosure rather than filling the foreclosure pipeline all at once,” which should prevent a sudden drop in home prices.

Foreclosure starts increased on an annual basis in 33 of 50 states. Some of the biggest increases were seen in the judicial foreclosure states like New Jersey, where foreclosure starts were up 118 percent YoY, Pennsylvania, 93 percent. In Tennessee, a non-judicial foreclosure state, foreclosure starts were up a whopping 165 percent YoY.

Going forward, a higher percent of these foreclosure starts are likely to end up as short sales or auction sales rather thank bank repossessions according to RealtyTrac CEO Brandon Moore. Pre-foreclosure sales have less of a negative impact on home prices than bank-owned sales but they can benefit the lender since, pre-foreclosure sales sell at a higher average price point than bank-owned homes.

Here’s a chart from RealtyTrac that shows the rise in foreclosure starts:

foreclosure starts chart may






COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


EDITOR’S COMMENT: DICK DURBIN said it when the democratically controlled senate and house refused to even inquire about the real nature of the securitization illusion — “The Banks own the place.” He was of course referring to the incredible amount of influence of the banking lobby fueled by hundreds of millions of dollars in campaign cash and other benefits. Now SISA — Stated Income, Stated Assets — has acquired new meaning, this time for the banks, who are using it as fraudulently as the mortgage brokers who “corrected” homeowner applications for loans to reflect the amount of income and assets needed to justify the underwriting of the loan. Now it means to justify the stock prices, management jobs, and business viability of broken banks.

And with nearly 1 million homes “owned” by the banks, the housing market looks weaker indefinitely. How could these prices and the prospect of lower prices be possible? It’s easy. The whole thing is based upon a false premise that nobody wants to face — the banks do NOT own those properties. They are legally owned by the homeowners who were the subject of false and fabricated foreclosures initiated by non-creditors with no skin in the game except the desire to get a “free house.” They never loaned the money, they never bought the “loans,” the loans were defective from the start, and they never had the right to purchase those homes with a non-cash (credit) bid at auction because the auction was fraudulently obtained and the credit bid was devoid of any reality.


Ask any real estate professional and they won’t be able to come up with a fundamental reason why the housing market went down this far nor why the prospects for the housing market are still lower. Ask them or any economist, and the answer slowly emerges by process of elimination — there is no fundamental reason for this situation because it isn’t real. You want the economy to recover? Remove the illusion of securitization of loans, unless they are proven under existing laws and existing rules of evidence, and then the unthinkable happens — the wealth that was stolen from the American middle class turns out not to have been stolen after all — the victim is simply giving up what was stolen because the victim is convinced the scam was real.

Let’s see what happens as the Title Companies start to tackle this issue because they have potential liability in the trillions, which is money they don’t have. The simplest way out for them is to state that there is no claim against the title policy because the loss never occurred. If the homeowner still owns the house then who is to be paid. If the “lender” at closing (pretender lender” never loaned any money, there is no loss. If any other named payee on the insurance policy lost no money, then the title policy does not come into play.

If you want a stimulus to the economy, the just tell the truth. The mortgages are fatally defective, they were never transferred, they were never intended to be transferred, and borrowers’ undocumented obligations have long since been extinguished by the feeding frenzy on Wall Street from the money advanced by investors and paid by borrowers, federal bailouts, insurance, credit default swaps, guarantees and settlements. Check it out yourself. This sounds crazy because it is — it is crazy-making by the world’s largest financial institutions (on paper) when in fact they are not large and not even viable if their auditors would just do their job and tell the truth.

How far will this go, dragging housing prices and the the prospects of recovery down with them? It looks like the answer is it will go as far as we let them.

May 22, 2011

As Lenders Hold Homes in Foreclosure, Sales Are Hurt


EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.

But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once.

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

“My biggest fear right now is that the supply has been artificially restricted,” said Jayson Meyerovitz, a local broker. “They can’t just sit there forever. If so many houses hit the market, what is going to happen then?”

The major lenders say they are not deliberately holding back any foreclosed homes. They say that a long sales process can stigmatize a property and ratchet up maintenance and other costs. But they also do not want to unload properties in a fire sale.

“If we are out there undercutting prices, we are contributing to the downward spiral in market values,” said Eric Will, who oversees distressed home sales for Freddie Mac. “We want to make sure we are helping stabilize communities.”

The biggest reason for the backlog is that it takes longer to sell foreclosed homes, currently an average of 176 days — and that’s after the 400 days it takes for lenders to foreclose. After drawing government scrutiny over improper foreclosures practices last fall, many big lenders have slowed their operations in order to check the paperwork, and in two dozen or so states they halted them for months.

Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

Realty agents and buyers say the lenders are simply overwhelmed. Just as lenders were ill-prepared to handle the flood of foreclosures, they do not have the staff and infrastructure to manage and sell this much property.

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

The silver lining for home lenders, however, is that the number of new foreclosures and recent borrowers falling behind on their payments by three months or longer is shrinking.

“If they are able to manage through the next 12 to 18 months,” said Mr. Zandi, the Moody’s Analytics economist, “they will be in really good shape.”

BlackRock Shifts: Principal Reduction OK in Bankruptcy

April 16, 2010
Editorial NY Times

Fighting Foreclosures

From the start, the central concern about President Obama’s antiforeclosure effort has been that it would postpone foreclosures but ultimately not prevent enough to ease the economic strain from mass defaults. That concern seems increasingly justified.

In the first quarter of 2010, there were 930,000 foreclosure filings — an increase of 7 percent from the previous quarter and 16 percent from the first three months of 2009, according to recent data from RealtyTrac, an online marketer of foreclosed properties. The surge seems to indicate that homes that were in the foreclosure pipeline are now being lost for good.

The administration’s figures are not encouraging either. The Treasury reported recently that as of March, nearly 228,000 troubled loans qualified under the Obama plan for long-term payment reductions; another 108,000 long-term modifications were pending. That’s up from February, but still far behind the need. Currently, some six million borrowers are more than 60 days delinquent.

Three oversight groups have issued reports in the past month criticizing the administration’s effort and predicting that it would fall far short of its goal of helping four million borrowers by the end of 2012.

And on Tuesday, officials from JPMorgan Chase and Wells Fargo told a Congressional panel that they were not inclined to fully embrace the administration’s latest foreclosure-prevention plan. Announced in late March, it calls for lenders to modify troubled mortgages by cutting the loan principal, which restores some equity to borrowers while lowering the payment. The bankers were unpersuasive. They generally objected to large-scale principal reductions, even though the administration’s plan applies relatively narrowly to borrowers who are deeply indebted and meet various other criteria.

The testimony was more proof that relying on lenders to voluntarily rework troubled loans is not working.

The hearing investigated a specific obstacle to widespread modifications: Investors, including pension funds and mutual funds, often hold the first mortgages. Banks often hold home-equity loans and other second mortgages. Investors reasonably believe that second liens should be reduced before the primary mortgage is modified, but banks balk at that because it would prompt write-offs they don’t want.

Some investors, notably the powerhouse group BlackRock, have called for a special bankruptcy process to resolve the standoff. The court would seek to reduce bankrupt borrowers’ total debt to affordable levels, starting with unsecured debt like credit cards, then undersecured debt, like second mortgages, and then, if necessary, the primary mortgage debt.

We have long called for using bankruptcy court to help resolve the foreclosure crisis. A big advantage of bankruptcy over government-subsidized modifications is that bankruptcy is a difficult process that does not entice anyone to purposely default in order to get better repayment terms.

Banks have argued for the status quo, in which bankruptcy judges are not allowed to modify the terms of primary mortgages, and they have prevailed in Congress and, apparently, within the administration. The result is an ongoing foreclosure crisis. It is time to revive the fight to open the courthouse door to bankrupt homeowners.

The Year in Foreclosures

The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.

“There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.”

February 15, 2010
Editorial New York Times

The Year in Foreclosures

Last week offered some sobering news on the housing market: Even with broad government support for housing, data from the National Association of Realtors showed that the median price of single-family homes continued to decline in 2009. RealtyTrac, an online marketer of foreclosed properties, said foreclosure filings rose by 15 percent in January compared with a year ago.

Foreclosure is generally a long process, with multiple filings as delinquent borrowers fall ever further behind. What is most ominous about the latest RealtyTrac numbers is that nearly 88,000 people had their homes repossessed in January, a 31 percent increase from a year ago. The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.

Worse, as The Times’s Peter Goodman recently reported, the Obama administration’s antiforeclosure plan (which pays cash incentives to mortgage companies that lower monthly payments for troubled borrowers) may be doing more harm than good for some borrowers.

Before a lender will permanently modify a loan under the plan, eligible borrowers must go through a trial period — several months in which they keep current on reduced monthly payments. For some borrowers, even a reduced payment is too onerous, leading to redefault. Others reported being denied a permanent modification even after keeping up the trial payments. In both cases, the borrowers do not avoid foreclosure, and are out the money they have paid during the trial period. That is money they could have spent moving to a rental home or for other purposes.

There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.

Administration officials have resisted that approach, in part because they believe it would be too expensive. Another obstacle is the lenders themselves. In general, a lender is unwilling to take losses by reducing principal unless the owners of the second mortgage on a home also take a hit. For banks that own the second mortgages, such losses would be huge — something they clearly would prefer not to face up to.

Banks’ unwillingness to take losses on second mortgages may also be holding up so-called short sales, in which a lender agrees to retire a first-mortgage debt by taking the proceeds from the sale of the home, even when the amount is less than the mortgage balance.

Last April, the Treasury detailed a plan to get second-mortgage owners to write down their debt once the first mortgage is modified. But until recently, when Bank of America signed on, no banks had cooperated.

Unless the banks can be compelled to get on board — allowing principal reductions to become the norm — the antiforeclosure effort may have more success in letting banks postpone their losses than in helping Americans keep their homes.

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