Certain parts of the US have been hit harder than others, but there are many people in who currently owe quite a bit more on their homes than they are worth. Some have chosen to walk away while others (if they can) have just continued paying their bill each month.
The government just recently announced their affordable mortgage modification program to help reduce the amount some borrowers owe on their home loans. According to USA Today’s article (Aid plan could lower payments on underwater mortgages)…
“The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.
The plan, announced Friday, would also enable the borrowers’ existing mortgage companies to receive incentives to lower their principal balances. To be eligible for the FHA refinancing program, borrowers who owe more than the value of their homes, known as being ‘under water,’ must not have fallen behind on their existing mortgage payments.
Separately, the program also would reduce monthly payments for unemployed homeowners for up to six months. The administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.”
From what I see of the plan, it isn’t in any way intended to fix all the underwater mortgages. It is merely an aid to help prevent some foreclosures over the next few years. Current estimates are that there will be over 10 million foreclosures in the next three years and the government’s Making Home Affordable plan is just a small measure to minimize that number – but not eliminate it.
The plan is supposed to help about 4 million Americans avoid foreclosure. Starting soon lenders will not be able to begin foreclosing until they have determined that borrowers are not eligible for the home affordable modification program.
My thoughts on the program
Personally I think it is a little bit dangerous when the government gets involved in areas like this. It is easy for me to say, because I am not (or at least I think) underwater with my mortgage. But whether you or I would be recipients of this help, the fact is that we all have to pay for it – and even more importantly we are slowly exchanging more of our freedoms for the comfort of having the government “look out” for us and fix our problems.
It seems to me that while it is hard for anyone who needs help to turn it down, a line has to be drawn somewhere. Just like most people, if my house were nearing foreclosure I would probably try to take advantage of the program. But how do we fix the issues? Is the answer just continuing to create programs like the home affordable modification program?
{ 12 comments… read them below or add one }
Be careful if you have an original mortgage used to buy the house which is therefore “non-recourse” in some states. As soon as you re-finance, which this program uses under the covers to reduce principal, your mortgage becomes a “recourse” loan and if you ultimately lose the house they can come after you for the rest of the money to make them whole.
See http://www.creditwritedowns.com/2010/03/do-non-recourse-loans-become-recourse-in-the-new-mortgage-plan.html
The thing is, many of us have homes who’s value is much lower than it was a few years ago. We aren’t ‘underwater’, but that’s because we put down a reasonable amount to begin with. People need to be accountable for their own actions. We cannot as a country bail out every person/company in every situation. It is so scary to me to see this continuing trend.
I have relatives who are part of this program. It has destroyed their credit, but it was the only chance they had of keeping their house. It looks like they may lose it anyway, but it was something that felt they had to try. My relatives feel like giving up on a mortgage was the wrong thing to do so they have been very torn. Unfortunately for them, and for others like them, this program (and programs like it) are the only option.
Just what we need, more government programs paid for by the tax payer. We need to tell the feds “no thanks’ when they come up with this stuff. Americans need to stop looking to the feds to bail them out of all their troubles… My personal view, I could be wrong of course.
The hard truth is that we need to let people lose their homes. The govt is doing people a disservice in giving false hope that they can stay in their homes. The HAMP program drops the rate down to 2% for 5 years and then every year after that raises it 1%. So people who can’t make a mortgage payment on 5% will be right back where they started in 6-8 years. Also, most people who can’t make their mortgage now probably can’t make it at 2% either. Many have lost their jobs and have no income or very little. It’s unfortunate that people didn’t make good financial decisions.
The govt needs to let the market do it’s thing and reset. The reason the housing market is stagnant is the govt is attempting to prop it up with refunds and incentives. The music eventually stops and when it does, the prices and values of homes will return to what they should be. People’s salaries haven’t increased very much over the last 10 years, so prices should return to about the 2000 level. It’s unfortunate, but it is reality.
I really think I agree with Noah. It may be a hard thing to think about, but I think the government should stay out of this stuff and let the market run it’s course. People will lose thier homes and ruin thier credit for a time, but then maybe they’d learn a bit of a lesson and not make the same mistake again. Eventually thier credit will heal and they can rent in the meantime. Unfortunately I think many people could actually afford thier homes if they would downsize on thier life style, but they won’t or don’t think they can.
Hey,
That’s great your government is doing that to help people out. I would hope our Canadian government would do the same if we were in as bad a state financially. It’s also good of you to make people aware of the new relief program. If only people had taken your financial advice and headed your tips on budgeting so that they would have only purchased and financed a house that was not only well within their current budget, but also within their bufget if rates increased.
Anyway, keep up the good work and keeping us aware of all the new things hapenning.
Cheers,
Forget the arguments of whether it is good or bad policy for now. It’s irrelevant since its US policy regardless. I am an underwater mortgagee. I did not attempt to game the system – I simply had the misfortune of buying at the peak of the market. I can easily make my payments – even when my interest rate begins to float next year. So I owe 25% more than the home is worth. I qualify under the HUD refinancing plan announced last week. 3 Things have to happen – 1) my lenders have to agree to offer the program to me Its VOLUNTARY for lenders to participate. 2) My principle must be written down to 115% of the current value and 3) I have to accept “the deal”. “The Deal” is that I get locked into a loan 15% higher than my home is worth. I will also lose my spotless credit rating (currently FICO does not count principle write-downs in the program against the score – but that is only a matter of time). Finally – I can never walk away from my home since the newly federally guaranteed loan would act like a giant student loan which cannot be removed even in bankruptcy. Not really a great deal for the homeowners getting “bailed out”. Then there is the small matter of assuming that prices have bottomed out. It is foolish to assume that is the case. There is still significant downward pressure from foreclosures that continue despite efforts to stop them and the little problem of being a glut of homes on the market. Prices probably will continue to drop – perhaps as much as another 25%. Where would I be then? Locked into a loan that I cannot undo leaving me WORSE OFF than I am right now. So – no thank you to the “bail out”. I’ll continue to make my payments – and God forbid – financial disaster strikes – I will leave my options open to simply walking away.
There is no real help for people like me.You just waste time going around in circles trying to see who you can get help. I am going on 14 months trying to hire help that goes bankrupt.losing money and my hope.There is no Obama program out there that can help.Bank of America is selfish there thinking of them selves and not the people.
First of all, it’s not the average American caused this recession, it’s the financial companies and banks. They made bad loans and drag everyone down even good average hardworking Americans. They got bail out money from our government which using our tax dollars and instead of helping the average American with lower payment loans, they used it on their own bonus. Why do the average American should pay for the mistake by the Republicans and their cronies the banks and financial companies. Ask Henry Paulson, why did he give 750 billions to banks without any restrictions? Just remember, we didn’t cause the housing market collapsed and thus shrunk the job market. Why the average American has to pay for the mistake of the government deregulation and banks. We should get compensate for all the sufferings that we go through.
I think that the government plans will work. The Home Affordable Refinance Program will refinance up to 125% of the appraised value of the house. With house values falling, this plan gives some hope to homeowners. The issue is how fast the banks are working to get these mortgages refinanced. If they take 6 to 12 month to do a deal, that is not acceptable. By then the values have fallen further. A new appraisal is needed. And with the new numbers the deal might fall through.
All lenders and servicers that took money from the government should be required by law to refinance these mortgages in a timely fashion. I believe that 90 days would be adequate.
The Home Affordable Modification Program is an excellent program if you can get through the application! After taking days to read & understand how to fill out & quality for HAMP I was able to lower my interest rate to 2%. The application was so confusing because they want you to fail! Now that I understand how to qualify I was able to help my neighbors get approved usually in about 30 days!