Bondi and several attorneys general from other states say principal reduction oversteps the mission of the group that is negotiating with the five banks, and she fears it could turn into a free-for-all of underwater homeowners. The Mortgage Foreclosure Multistate Group should stick to addressing the wrongdoings of loan servicers, she said, instead of trying to dictate how lenders modify problem home loans.
Pushing lenders to forgive part of their mortgage holders’ debt could encourage even responsible homeowners to stop making payments on their loans, in the hope they can eventually get their bank to erase part of their mortgage, Bondi wrote in a recent letter to the head of the working group.
“Some homeowners may simply default on their loan and use the States’ agreement to obtain a principal reduction — whether or not they actually made an effort to maintain their mortgage,” wrote Bondi, who serves on the negotiating group’s executive board.
She called it a potential “moral hazard” that “rewards those who simply choose not to pay their mortgage — because they can simply take advantage of lenders‘ obligation to honor virtually automatic principal write-downs.”
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