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Banks slow to help defaulters

by Staff Reporter7 minute read
The Adviser

US mortgage lenders are unlikely to rework home loans held by borrowers facing foreclosure because it could cost them money, a study by the Federal Reserve Bank of Boston has found.

Recently the Obama administration attempted to fix the foreclosure crisis by supplying the lending industry with $US75 billion to rewrite delinquent loans.

However, according to one of the study’s co-authors, Paul Willen, the government would be better off giving the money directly to the struggling borrowers.

“Loan modification is not profitable for lenders,” Mr Willen said. “Lenders find compelling reasons not to find help for borrowers.”

The study looked at 665,410 loans between 2005 and 2007 that became delinquent. Only 3 per cent of delinquent borrowers, those more than 60 days behind, had their loans modified to lower monthly payments; about 5.5 per cent received modifications that didn’t entail lower payments.

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