The Volokh Conspiracy - More Unintended Consequences of the Bailout:

Diana Olick of CNBC reports that lenders have slowed the efforts to workout discounts on nonperforming mortgages in anticipation of the government bailout:

As the government's Hope for Homeowners program, designed to fend off foreclosures, kicks in this month, it could face hurdles from the government itself.

Hope for Homeowners gives the FHA the authority to back 300 billion dollars worth of restructured loans, if, among other things, the lenders voluntarily agree to drop the value of the principal to 90 percent of the home's current value.

But with the 700 billion dollar bailout also in gear, which includes the government buying whole loans and bundles of loans owned by banks, I'm hearing that many banks and lenders are choosing to hold off on modifying or restructuring loans--thinking they might get a better deal from the bailout.

Banks are also holding off on selling foreclosed properties and doing short sales, again hoping to get a better deal on those as well (short sales are when the bank agrees to let the owner sell the home for less than the value of the mortgage, which can cost less than foreclosure).

	[Todd Zywicki, October 15, 2008 at 5:33pm] Trackbacks More Unintended Consequences of the Bailout: Diana Olick of CNBC reports that lenders have slowed the efforts to workout discounts on nonperforming mortgages in anticipation of the government bailout: As the government's Hope for Homeowners program, designed to fend off foreclosures, kicks in this month, it could face hurdles from the government itself. Hope for Homeowners gives the FHA the authority to back 300 billion dollars worth of restructured loans, if, among other things, the lenders voluntarily agree to drop the value of the principal to 90 percent of the home's current value. But with the 700 billion dollar bailout also in gear, which includes the government buying whole loans and bundles of loans owned by banks, I'm hearing that many banks and lenders are choosing to hold off on modifying or restructuring loans--thinking they might get a better deal from the bailout. Banks are also holding off on selling foreclosed properties and doing short sales, again hoping to get a better deal on those as well (short sales are when the bank agrees to let the owner sell the home for less than the value of the mortgage, which can cost less than foreclosure).