Foreclosures, Debt May Lead To Rise In Loan Modifications

Americans have been suffering increased debts and foreclosures in recent months, with seemingly no end in sight.

Recently the situation came to a head in the 'robo-signing' crisis and subsequent moratorium that would have stopped the foreclosure process. Economists also seem divided on the issue, some suggesting the stoppage could hurt the already weak housing market. Still consumer advocates believe many homeowners may have been wrongly evicted.

However, a new report suggests the recent foreclosure epidemic, could lead to more loan modifications. This would replace the need for banks to buy back bad mortgages, which would potentially cost lenders billions of dollars, Fox Business reports.

Under the plan, consumers and banks would work to reduce house payments in an effort to keep people in their homes, the news source says.

"We suggest relief could be provided to the lenders if it could be documented that the loan servicer took meaningful efforts to restructure the loan with a meaningful reduction in payments and also giving the borrower some time," says Federal Deposit Insurance Corp. chairman Sheila Bair.

The report suggests the ongoing government investigations have the potential to force banks into this loan modification scenario.