Monthly Archives: December 2008

Share the Pain and Share the Gain

I have heard calls recently for lenders to “lower the principal” of loans.  I don’t think that is likely to happen or if it is even a reasonable request.  If people were duped into taking out the loan, the request might be reasonable.  However, in that condition, I would like to see even more drastic action taken against the lender like prosecution for fraud.  If the both the borrower and lender went into the loan in good faith, should they not both be treated fairly?

How about this?  Set up a program where lenders can lower principal in exchange for an equity interest in the house.  If the lender lowered the principal by 25%, they would get a 25% equity interest in the house.  The borrower would gain immediate relief and the lender would have an investment.  When the borrower sold the house, they would pay off the mortgage and the lender would get their percentage of the net proceeds.  The lender and borrower both would share in the pain and the gain.