Troubled mortgage borrowers should be rescued
Few months in the worst financial crisis in decades, major lenders and the federal governments accross the world are acting together on solutions to help struggling financial institutions, large government companies and property developers. Small investors and mortgage borrowers remain on their own, forced by the circumstances to deal with the crisis as they can.
Major property developers already introduced flexibility into their payment plans, while banks such as ENBD, Loyd’s TSB and HSBC have separately implemented various internal regulations to restrict lending. Recently Amlak Finance temporarily suspended mortgage applications.
However, such preventive measures to reduce financial risks are not relevant to borrowers who already committed to long term loans. Approaching the problem from the perspective of an investor and a borrower should be the next step not only for developers, but as well for lenders.
Renegotiating loans for struggling homeowners should be taken on more urgency as jobless claims will soon rise as the economy continues to declines and projects are scaled back. Real estate prices continue to fall, leaving many with mortgages greater than the value of their homes, and banks may suffer major credit losses as a result.
This is a rising issue and the solutions should target delinquent borrowers who are still capable to provide monthly payments. Financial institutions will need to consider modifying loans and mortgages for borrowers who can support payments by insuring those payments don’t make up more than reasonable percentage of income. Those modifications can involve reducing interest rates, lengthening the term of the loan or even lowering principal.
Loan modifications may be complicated and costly process, but for banks these are self-preservation measures in the long term.
By Gergana Mineva, Dubai Chronicle, November 21, 2008
Le Journal RIBH 