Face Off: Banks vs. Families

Faceoff: Banks vs. Families

As banks run around like chickens with their heads cut off, homeowners are seeking to take matters into their own hands.

According to a recent housingwatch.com article, homeowners can negotiate a 20 percent reduction on their mortgage. The problem? As of late, banks have consistently blocked such requests due to the potential of significant loss from borrower debt reduction. To make matters worse, the Treasury is turning a blind eye.

As a result, livid consumers like Nobel Prize-winning economist, Joseph Stiglitz, and TARP watchdog Elizabeth Warren are taking center stage in the battle against the banks.

Unfortunately, as the saying goes, there are three sides to every story. The Treasury is letting banks get away with blocking such a high percentage of debt reduction for one main reason: so many consumers have taken out second mortgages that banks are already losing money. If the banks allowed for such a reduction on a mass scale, they will be quick to need another bailout. Due to the trillions of dollars in national debt, they are likely to seek help from TARP with no avail.

Consequently, the economy has left consumers in a mindset of rugged individualism. People are abandoning the economic structure with an “every man for himself" mindset. Josh Rosner, a financial analyst specializing in mortgage-backed securities, suggests that borrowers fight and walk away from their mortgages. He believes that if enough people do it (15,000 to be precise), banks will be forced to respond.

Unfortunately, many consumers don't experience the ideal financial unity that Rosner, as well as other analysts, hope to accomplish. One lesson many consumers have already learned is that walking away from credit doesn't make things better. In fact, by walking away, you risk increasing interest rates and late penalties. If you have a second lien, you can face defaulting on your loan, causing critical damage to your credit in a time where good credit is vital. It all depends on whether or not consumers are willing to take the gamble, walk away, cross their fingers and hope the other 14,999 will follow.