Friday, March 26, 2010

Government Moves to Assist Underwater Homeowners

  • The government is trying to encourage lenders to reduce principal amounts owed for borrowers who are "underwater." Personally, I think this is a mistake. It is giving free rides to people who used their home equity as piggy banks and can still actually afford their homes. Government needs to stop spending tax payer money rewarding the irresponsible. Here are a few notes from an article about it in the New York Times:

    tags: foreclosures, administration, underwater

    • New initiatives to help troubled homeowners, potentially refinancing millions of them into fresh government-backed mortgages with lower payments.
    • Temporarily reduce the payments of borrowers who are unemployed.
    • Encourage lenders to write down the value of loans held by borrowers in modification programs to make their mortgages more affordable.
    • The new initiatives could well spur protests among those who have kept up their payments and are not in trouble
    • White House briefing, officials emphasized that no new taxpayer money would be used for the programs. Instead, funds to provide incentives for loan servicers to participate would be drawn from the $50 billion allotted to housing in the Troubled Asset Relief Program.
    • The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.
    • About 11 million households, or a fifth of those with mortgages, are in this position, known as being underwater. Some of these borrowers refinanced their houses during the boom and took cash out, leaving them vulnerable when prices declined. Others simply had the misfortune to buy at the peak.
    • If successful, however, the plan could pose a different type of problem: it could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.
    • The new initiatives will expand the government’s current mortgage modification plan, announced a year ago with great fanfare. It has resulted in fewer than 200,000 people getting permanent new loans. As many as seven million borrowers are seriously delinquent on their loans and at risk of foreclosure.
    • fewer people are beginning default, the number of borrowers who are seriously distressed is rising. In the fourth quarter, the number of households at least 90 days past due on their mortgages swelled by 270,000
    • The government is seeking to persuade people to stay in their homes by aligning the mortgage debt with the asset value, which is the only viable path to real housing stability

No comments: