Dr. Richard Green, Director of the USC Lusk Center for Real Estate, is quoted in the June 26, 2009 edition of U.S. News & World Report
Principal Writedowns Make for Better Loan Modifications - But Nobody Does it
U.S. News & World Report
By Luke Mullins
...President Barack Obama's loan modification plan gives servicers all kinds of options for getting a borrower's debt-to-income ratio down to that 31 percent threshold. They can extend the terms of the loan, lower the interest rate, and even - if they are so inclined - trim the unpaid principal balance of the loan itself. But the administration has been criticized for not mandating that servicers write down the principal balance when they modify a loan, which, some argue, would improve the effectiveness of the program.
"For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Richard Green, the director of the Lusk Center for Real Estate at USC, told me when the details of the plan were unveiled in early March. "Writing down the principal first instead of last- which is what [the Obama administration is] proposing - makes sense to me."
Judging from Lender Processing Services' June Mortgage Monitor Report, which was released Thursday, it seems that Green was correct. The report found that "the success rate for loss mitigation-related loan modification hovers in the 30-40% range, with a higher success rate for loan modifications involving a reduction in unpaid principal balance."...
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June 26, 2009