Editor's note: Holden Lewis is on vacation. This blog entry was written by Bankrate Senior Editor Chris Kissell.
Monday, March 29
Posted 11 a.m. EDT
The Obama administration's push to get mortgage servicers to reduce the mortgage principal of underwater borrowers sounds like a good idea.
As a free-market guy, I recoil at the very thought of people not paying their obligations. But as a homeowner who is tens of thousands of dollars underwater on his own condo, I'm a tad more understanding (even if it's extremely unlikely I'll benefit personally from the new guidelines).
Like it or not, a massive wave of mortgage forgiveness may be the best thing for all of us. The housing market remains on life support, with no real end in sight to the foreclosure crisis bleeding home values dry and laying waste to entire neighborhoods.
Widespread reduction of mortgage principal "could help end the housing crisis earlier than anticipated," according to a Dismal Scientist blog entry by esteemed economist Mark Zandi.
Don't get me wrong -- I remain skeptical of the government's ability to really get this done. For starters, mortgage servicers are not actually required to offer mortgage writedowns. Instead the government is tossing around phrases like "requirement to consider" (my italics) and "servicer will have the option."
Also, the eligibility guidelines remain muddy. We're told that a borrower whose property is worth at least 15 percent less than the amount of the first mortgage may be eligible.
How do the "15 percenters" among us know if they qualify to join that lucky group? The government assures us that "your servicer or investor will contact you if you are eligible."
Well-deserved breakThis wishy-washy approach mirrors the government's introduction of the original Making Home Affordable Program last year. That announcement confused borrowers, lenders and just about everybody else.
And we all know how the program itself eventually turned out.
However, if the government truly is going to offer mortgage modifications to people who are simply underwater -- including homeowners who don't have extenuating circumstances, such a job loss or dearth of savings -- it feels like a rare victory for the good folks.
Today's housing crisis is partly the result of rich fat-cat bankers and traders who acted greedily. People of modest incomes also contributed to the downturn by foolishly buying homes with no money down, then defaulting when things turned south.
Government largesse bailed out both sets of ne'er-do-wells. Lucky them.
Meanwhile, the people who played by the rules -- the sensible folks who bought homes well within their means and maybe kept a little savings on the side for a rainy day -- have been shafted.
Millions have put their lives are on hold, trapped in homes they cannot sell. Yet despite being stuck in a state of "house arrest," these homeowners continue to do the right thing each month, plowing more hard-earned cash into a venture increasingly unlikely to ever yield a positive return.
Everyone else has gotten a break, so why not them?
Read more mortgage blogs.