If a mortgage is underwater and the debtor cannot (or will not) pay, then it hardly matters to the investors whether the owner is foreclosed on, or the city for

If a mortgage is underwater and the debtor cannot (or will not) pay, then it hardly matters to the investors whether the owner is foreclosed on, or the city forces principal reduction. Either way, the investor takes a loss. But seizing current underwater mortgages would be terribly shortsighted. What intrigued me is the idea that investors would be willing to accept a principal reduction, but cannot because the logistics are too difficult. FTA: Although it was in the banks' interest to write down the principal on loans to avoid an outright default... ...so many different investors would have to sign off on the change. Because of that, these "private label securitized" loans are much more likely to default than the banks' portfolio loans. So maybe a deal could be crafted that is in the interests of both investors and homeowners. Home buyers might get the short end, with fewer foreclosed homes coming on the market, but I've heard that banks tend to sit on foreclosed properties for a long time anyways, so it may not affect the market supply much.