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Federal Reserve Economists "Debunk" Principal Reductions

By Implode-Explode Heavy Industries

``we shouldn't automatically assume that borrowers with negative equity will always default. What if there are two borrowers owing $150,000; and one prefers not to default and eventually pays off the loan. If both loans are written down the lender will collect $190,000 ($95,000 from each borrower) but if the lender does nothing it will eventually collect $50K from a foreclosure and the full $150,000 from the non-defaulting homeowner. '' -- Ah, but since no one is giving principal reductions to those who aren't delinquent, does this analysis really hold?

Full post as published by Mortgage Lender Implode-o-Meter on March 11, 2011 (boomark / email).