BluefoxToday blog : Principal cutbacks gaining ground - Las Vegas mortgage borrowers sure could use them

Principal cutbacks gaining ground - Las Vegas mortgage borrowers sure could use them

CityCenter Las Vegas NVMortgage lenders and servicers have been reluctantly doing loan modifications mainly by paring back interest rates and stretching terms, thereby managing to reduce borrowers' monthly payments to some degree. But obviously that strategy is not working as well as many had hoped for. Restructured home loans keep defaulting at an alarming rate.

DBRS, a debt rating agency, now figures that more than half of them are two or more months behind or sink into foreclosure inside six months from the mortgage modification. Clearly, that's hardly the way to resolve the home loan mess. To get to the core of the problem a new direction in thinking has to be found. Actually a doable solution has been debated for some time now, but mortgage lenders haven't put their arms around the idea much. It's called principal reduction.

Home loan providers and servicers have been pulled kicking and screaming into looking at the idea again, and slowly they seem to be warming up to it. Recent statistics prove that. In the first quarter of 2009 3% of mortgage loan modifications included principal cutbacks, reports confidently DBRS. In the second quarter the number grew to 10% and in the third it stood at 13%. The trend is obvious. It appears the mortgage industry is finally seeing the light, but it sure took them a long while to get there.

Las Vegas valley - including Henderson, Mountains Edge, Silverstone Ranch, Rhodes Ranch, Summerlin and Spanish Trail - mortgage recipients are glad to see this development. Scores of them are seriously underwater and without principal cutbacks they would have little incentive to make payments even if they could afford them. To many it just doesn't add up to keep pouring hard-earned money into a losing asset. If the mortgage lenders here bring the loan balance all the way to market, they'd have a lot of eager homeowners sending payment checks in. And the currently high foreclosure rate would be drastically improved. If they do so only part way, it would predictably still prevent a host of mortgage borrowers from going into default.

Should this trend continue it would begin turning the pummeled mortgage and real estate markets in Las Vegas and nationally around in a decisive manner. At this stage in the game this is about the best way to go about it.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 4 commentsEsko Kiuru • January 29 2010 03:15PM


Esko, this is definitely an intriguing idea.  It will be interesting to see how the finance companies move forward...

Posted by Tony Cordi (Tony Cordi, Broker (Beachtime Realty)) almost 11 years ago

Esko I guess I an still one of the ones that do not agree with that, and for the same reason that I have always stated before.  Why should those who bit off more that they could chew profit from it, while other who are also struggling but painfully paying their mortgage not receive the same benefit.  And if principle payments are reduce on houses then why not also to car payments, furniture, electronic equipment.  And let's not forget the 401K plans that have lost money, those plans should all reinburse  us for our loses.  How do any of these differ from the home buyer who agreed to the sales price and monthly payment, no one had a gun up against their head.

Sorry Esko I don't mean to go off on this, but this is one of my hot buttons :)

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 11 years ago


The pace is accelerating based on last year's stats, so lenders are getting serious about it.

Posted by Esko Kiuru over 10 years ago


I know your position on this and that's cool. It sure is a complex matter, no easy answers to it.

Posted by Esko Kiuru over 10 years ago