IMF pushing for US banks to reduce principal amounts on home loans

HouseDebtAccording to a recent Washington Post article by Howard Schneider, the International Monetary Fund is pushing for lenders in the United States to agree to principal reductions on their existing loans.

As a general rule, banks are very (VERY) reluctant to reduce principal reductions.  It will be interesting to see if these types of pressures, from international organizations to be exact, will actually have an effect on the loan modification strategies that US lending institutions currently follow.

Here’s a quote from the article:


“International Monetary Fund chief Christine Lagarde called on the U.S. government to reduce the mortgage debt owed by homeowners as a way help to revive the nation’s economy and stimulate growth in the wider industrialized world.

Speaking Thursday at the Brookings Institution, Lagarde urged that this relief be extended to loans held by mortgage giants Fannie Mae and Freddie Mac. The issue of whether to reduce mortgages held by Fannie Mae and Freddie Mac, representing more than half of U.S. home loans, has become contentious in Washington in recent months.

Ahead of the IMF’s spring meetings next week, agency analysts have been warning that household debt — in particular, mortgages that are in default or that exceed the value of the borrower’s home — is dragging down growth in developed countries at a time when the global economy is struggling to revive.”

Photo: renjith krishnan