Attorneys Want to Pressure Lenders on Relief.

Byline: Jennifer Harmon

New York-Rates of mortgage delinquencies and foreclosures are increasing rapidly, imposing large costs on borrowers, their communities and the national economy.

Speakers at the recent real estate law section of the New York State Bar Association's annual meeting here said the federal government is building momentum to be proactive and fight foreclosures by figuring out ways to persuade lenders that loan forgiveness is important.

Vincent DiLorenzo, a professor at St. John's University School of Law, said WaMu is considering loan forgiveness in the loans it owns. He said more companies could be moving in that direction as well.

"The FDIC does not believe we should forgive the principal of the loan. So, are lenders supposed to forgive the loan or part of the loan? We cannot predict the outcome of these legislative initiatives," Mr. DiLorenzo told conference attendees. "We could see a demand for loan forgiveness in exchange for TARP funds and incentives offered for loan modifications."

TARP is being used to fix and improve the Hope for Homeowners program, which was too restrictive when it first came out, according to the speakers. Mr. DiLorenzo described how it was authorized by the Economic and Housing Recovery Act of 2008 to refinance mortgages for borrowers who are having trouble making their payments but can afford a new loan insured by the Federal Housing Administration. Under the program, ending Sept. 30, 2011, banks have to write down the existing mortgage to 90% of the new appraised value of the home.

At the conference, speakers quoted a revised report from Credit Suisse, which says a whopping 10.2 million homes could be in foreclosure in the next four years.