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The public nature of the deal has extra benefits for the gov’t and the banks. The Administration gets to look like it’s doing something, and hopefully avoids an S&L scale bailout. The banks get :
1) A relatively cheap default offer (the 2005 start date excludes the really cheap paper from 2002-2004)
2) Sends a clear signal to debtors who are in a bind and might qualify that they MUST stay current to qualify.
3) Some positive PR – “We’re trying to help”
4) Makes the process public, which hopefully offers enough hope to vulnerable debtors that home prices will recover to keep them hanging on, reducing the risk of a major crash.
The borrowers will take their lumps one way or another. Either in one big lump as a foreclosure, or struggle along under a heavy repayment plan and hope circumstances change. But that’s what happens when you speculate with your house.]]>