MH’s proposal as I understand it, is to provide conventional mortgages to borrowers in default. If my understanding is correct, this proposal involves a new entitlement. Although the proposal probably has qualifications, the qualifications will be relaxed over time to buy votes.
Lenders will be in favor of the proposal if they get out of bad loans with something near the note value. I do not see lenders voluntarily absorbing losses. Lenders already have the right to take losses on bad loans. In some situations, lenders are providing good terms to default borrowers such as providing a new loan. Lenders can best make these decisions, not JM or the rats.
Never underestimate the rats desire to create new entitlements. With solid rat control for the first time in many years, the rats will go crazy with entitlements. They want to attone for all of the unfairness in life. Their list of entitlements is endless.
I don’t see it as an entitlement, rather a revision of current federal regulations. Lenders shouldn’t be forced to participate, and should certainly have the option of pursuing foreclosure if they wish, though in most cases taking a loss on the face value of an under collateralized loan beats foreclosing and owning the property.
You’re correct some lenders are revamping terms for stressed borrowers, at their option of course. That’s the way the market should work. However that’s often not possible for borrowers in default, or with other credit problems, since the lender would be making a non conforming (sub prime) loan of limited marketability. The way I read the proposal, the FHA credit requirement is being waived if the homeowner qualified at purchase, and can qualify to make the new payments, intervening credit problems being ignored. I think it makes sense all the way around, though it not a bill, simply a paragraph long proposal so lots can change.
BTW, as to "voluntarily absorbing losses", lots of those losses have been recognized. And the lender is going to be taking loses on these loans whether they're resturctured or they go through forclosure. There aren't any other options.