The state of Iowa is a leader in using mediation to deal with the subprime mortgage mess. Tom Miller, Iowa's attorney general, is focusing on a "prevention over prosecution" philosophy in advocating for lawmakers to have parties seeking foreclosure mediate with their mortgage company to see if something can be worked out. Here's the article.
AG Miller faces a similar situation in the 1980s with the farm crisis, where farmers borrowed excessively based upon high crop prices and high food exports. When prices and demand came down, problems popped up.
The theory behind using mediation in subprime matters is similar to the thought in the 1980s with farmers: maybe the borrower can't pay back everything, but the borrower can pay back something. And mortgage companies don't benefit by having homes that are abandoned with no one taking care of them. A home owned by a mortgage company (called REO for "real estate owned") is a huge cost-center for the mortgage company.
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