Wall Street Journal Article Assignment
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Article Title: U.S. Pushes Mortgage Deal, Page A1
Author(s), Date and Page Number: Nick Timiraos, Dan FitzPatrick & Ruth Simon
Article Word Count based on Wall Street Journal: Eastern Edition Publication of the ABI Inform Database: 895 Words
One of the issues currently facing the United States is the mortgage market breakdown. Several people are now evading their mortgage payment and this may eventually result to apportioning of blame. United States government through the Obama administration has made attempts to implement settlements over breakdowns on mortgage servicing. The ultimate result would be the forcing of the largest banks in America to make payments for reductions in loan principals amounting to several billion dollars.
The terms of settlements proposed are however liquid and presentations have not yet been motioned in specific banks. The United States attorneys general as well as the state controllers are yet to agree on the exact amount of dollars. It is essential for a settlement agreed upon to satisfy different authorities ranging from state regulators to state attorneys. It the proposed settlement goes through, it means that banks would be necessitated to accept the costs associated with all write-downs instead of transferring them to investors.
Discussion of Course Concepts
In an attempt to solve the current mortgage breakdown crisis, the United States government is attempting to push through a settlement that would require the largest banks to make payments for the reductions in the amounts of loans borrowed by investors. According to the proposal, mortgage services are committed to lowering the loan deficits of depressed borrowers who owe the banks more money than their homes are worth.
The costs of the write-downs would be borne by the banks and not by the investors who bought mortgage-backed securities. A common settlement proposal would push for the large banks to make payments worth more than 20 billion dollars to fund similar loan amount to the troubled mortgage borrowers. A cloud of vagueness associated with the foreclosure or mortgage breakdown crisis could only be lifted through a comprehensive settlement deal.
However, according to the economical point of view, the way to recovery is only possible foreclosures forging their way forward to the housing market. There is a wave of uncertainty regarding the number of mortgage loan borrowers who would gain from the proposed settlement deal since there have been great challenges concerning management of the huge loan volumes amassed by borrowers.
Majority of loan alterations emphasize on lowering monthly payments through reduction of rates of interests and extension of terms. Several banks have a fear of embracing the reduction of principals. This is out of fear that borrowers with the ability to pay their loans would stop paying hoping to get rewards of reduced loan amounts. Hence economically, the increasing number of dormant borrowers would slow down the housing markets as well as the economy for a long period of time unless intervention measures are taken.
There is fluidity associated with the proposed settlement because the proposals have not been presented to specific banks. Moreover, the United States controllers and the attorneys have not yet agreed upon the exact amount of money that should be reduced. According to the proposal, banks would have to come up with their own changes or make use of the current programs since it does not call for lowering of the principal.
Banks would further be necessitated to lower the cost of second loan payment after changing the initial mortgages. There have been numerous analytical studies on the countrys largest banks following the foreclosure issues. According to the studies only a few borrowers has been foreclosed upon through improper procedures. Concerned were however raised regarding weak regulation of specific foreclosure procedures and inadequate number of staff.
In cases of government intervention on the economy or trade, it is essential for all the parties involved to come to a consensus. This means that a decision made should be universal and unanimously agreed upon. The same case applies to the proposed settlement plan that should satisfy the different authorities involved. These include the state controllers and even the state attorneys.
As at now, a final decision has not yet been reached upon and the federal agencies are still discussing so that they can reach a final conclusion and decision. When making strategic decisions affecting citizens, it is important to consider the parties affected most by the issue. The same case applies with the foreclosure issue, where there is an on-going debate with an attempt to determine the parties that have been greatly affected by the foreclosure issue and the extent of the effect.
According to state regulators, only a few individuals were foreclosed upon in an improper way. Arguments by the banks state that any settlement plan agreed upon should take note and account for the number of individuals affected by the process. The settlement proposed by the administration would force banks to pay hefty amounts on the write-downs instead of bestowing the cost to the borrowers. The key focus of the settlement is to ensure that services that pushed for improper foreclosure practices incur losses.
This would be possible when such services write down the loans services on investors or clients behalf. According to bank executives it is not given that principal reductions would result to improved payment patterns. They argue that principle cuts could in fact result to novel issues and complications. The main reason is associated with the difficulty to figure out those who qualify to be awarded the reductions and those do not.
Hitting the mortgage industry is perhaps dependent on agreeing upon any given settlement. If it becomes impossible to reach even one settlement, it would be recommendable for various federal agencies to consider smaller punishments or penalties by use of enforcement means, where civil actions could be take against banks.
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