Jack M. Guttentag, known to most of us in the industry as
The Mortgage Professor, is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. His new article
What Is a Voluntary Mortgage Recast, and Why Aren't There More of Them? is particularly timely with the numbers of families across the nation struggling to make their mortgage payments.
He notes that payment-increase recasts are designed to protect the lender's interest by ensuring the loan will pay off as scheduled. "All interest-only loans, and all ARMs that allow payments that are less than fully amortizing, have explicit provisions for recasts in the loan contract." But recasts for payment reductions are not included in fixed-rate loan contracts. A lender can agree to a recast, with or without a fee, or refuse it. And, although the cost to the lender is nominal, some lenders will take advantage of borrowers just because they can.
Dr. Guttentag's argument is that “the borrower’s right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders.”
Click here for the article. What’s your take?