The Housing Market slump in the United States is turning out to be more critical. It has left around seven million households on the verge of foreclosures. A large number of Individuals walled by loans, credit card payments & debts etc. are turning a deaf ear towards mortgage, especially when the housing prices are unfavorable. Individuals are focusing more to improve their credit ratings by paying off credit card payments.
The US government, since its inception, has tried all means to harness it. Buying mortgage securities, lowering interest rates, setting new standards and making policies, however, the outcomes are not so satisfying.
The idea of reducing loan principals last month was another step to save the besieged homeowners. However, Banks do not look so happy with this decision. According to them, the tool would not work as it is designed to. Principal reduction on one hand could reward households for consuming more than they could afford. While, on the other hand, the cost of reducing principal will be built into future loans, resulting in less access to credit and higher costs for consumers. It might punish future homeowners by raising the cost of borrowing. These latest foreclosure prevention measures might encounter some resistance among banks, ultimately rendering them less effective than hoped.
The justifications given by banks cannot be overlooked; somehow it is unfair to benefit the current borrowers by putting a burden on the future homeowners. What do you say – how can the government tackle this problem of principal reduction in such a way that it is beneficial to banks and to mortgage borrowers at the same time? In addition, how principal reductions in equity based home loans benefit homeowners, as these loans are widely used for domestic purposes rather than paying for housing?
Reference Link: http://www.nytimes.com/2010/04/14/business/14mortgage.html?scp=4&sq=mortgage&st=cse
Tags: Housing Industry, mortgage, Mortgage Industry, Principal Reduction Programs, US government
No one complained five years ago when increasing home values was a “sure thing”.
The market value of my own home is less than I paid for it.
Compassion really isn’t a legitimate component of this issue – sometimes you simply have to suck it down and ride out a bad investment (even if it didn’t seem bad when you signed the papers at closing).
Great topic, I am trying to work with my lender currenlty on this issue. I have lost over 100,000 in annual income. I owe over 100k more than the value. I want to ride out this negative position. I believe it will come back plus I don’t want to loose my capital investment. My lender now seems unwilling to find a way to participate in this new program. I seem to meet all of the criteria. It seems they want me to work thorugh the bankrupcy process. This has been very frustrating. They can’t get the formula to afford abliity? I cant get any real answer from them. Do you have any suggestions. I have been at this for over 21 months, I am currently 88,000 past due. Any suggestions? I feel we have about 60-70 days left.
I have worked this situation to the maximum but I feel now like I am hitting a wall. I have rescearched this priciple reductions programs and I seem to meet all of the criteria. I welcome any suggestions you my have. Are the courts the best course at this point?
Let’s see – My neighbor has lost a job and now gets to owe LESS on his mortgage, while I have been financially responsible, but I still owe the full principal that I agreed to pay. There is no benefit to anyone here, except for my neighbor (whose damn dog barks all night anyway). All the government is doing is further wasting our tax dollars and forcing their silly ideas on the rest of us, who are really ticked that our tax money is supporting deadbeats. In a scenario like this, why should anyone pay their mortgage?
The lenders already have their recourse – to foreclose on the property, and put it back on the market for a sale to someone who CAN pay the mortgage. This alone is enough to make it more difficult and more expensive for future borrowers, as the lenders will need to make up for these losses.
Borrowers have to decide for themselves what they will pay for, and if they decide not to pay for their house, then the system is designed for them to lose it. Lenders have to decide for themselves who they will lend to and what collateral they will lend on. This is the basis for the free market. The government needs to clean up their own messes before making even more messes in the mortgage market!
It has to be on a case-by-case basis because you have some many variables involved in this mess.
On the one hand you have the government putting pressure on banks to make sure every American has a home. So the banks start lending.
Then, you have creative financial products coming onto the market; i.e., securized lending, where the bad debt is leveraged and over leveraged.
The bubble bursts. Who is to blame? The owner who didn’t otherwise qualify, or the lender for lending? What happens to the innocent bystanders who chose not to buy into these risky products? Their home values have plummeted.
Bankruptcy has been a valuable tool to help with the economic recovery of America and will continue to facilitate a clearing of bad debt off the books of many millions of Americans and Companies.
We are on pace for record bankruptcy filings and not only are we seeing major corporations restructuring their debts under Chapter 11, we have many consumers liquidating under Chapter 7 or restructuring under Chapter 13.
You will continue to see an increase in mortgage foreclosures and 2013 is predicted to be the pinnacle year for foreclosure filings. Bankruptcy can save homes and bankruptcy litigation is a valuable tool to go after predatory lenders of securitized mortgages.
We force principal reductions through bankruptcy!
Links:
http://www.losangelesbankruptcylawmonitor.com/
http://www.greifenlaw.com
I’ve been chewing on this one for a while. Based on what I see in the current real estate market, I think it would be smarter for the banks to reduce principals versus having people lose their homes. I know people who have walked away from their homes because of being upside down. I can’t say that I blame them. Overall, it was the “system” on Wall Street and in the mortgage industry that helped enable this economic situation.
It is equal part homeowner, banks/mortgage companies and equal part the brainwashing of the “American Dream” (a.k.a. American Greed) that got us where we are. There is nothing fair about it.
I think the banks should talk to the homeless people and see what they think then about denying principal reduction.
On the commercial side………The banks/lenders are much more willing to restructure your loan and take a $300,000 loss due to a reduction and/or deferment of principal and interest than take a $3,000,000 loss through a foreclosure or distressed resale. They are not in the business of owning and managing real estate nor do they want to be.
There is not an answer to this question because principal reduction is not the direction that needs to be taken. Why should banks let customers pay 20% less for a note they agreed to pay back?
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