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Should homeowners be forgiven?

By Judy Martel · Bankrate.com
Tuesday, July 31, 2012
Posted: 9 am ET

There's a huge debt weighing on the economic and housing recovery: the nearly $700 billion overhang mortgage debt from a quarter of all homeowners who owe more on their mortgages than their homes are worth. According to the Wall Street Journal, that's leaving Congress with a big decision about whether to forgive any or all of the debt, and if such action would help improve the economy.

Underwater homeowners are more susceptible to foreclosure, which can drive down values of surrounding homes. Homeowners are also stuck in their existing homes, unable to relocate for a job or trade up to a larger home, which adversely affects a number of other home-related industries such as moving and construction companies. The fact that home prices are climbing again in many areas of the country has boosted some homeowners (700,000 in the first quarter, according to CoreLogic) into positive equity again, but the question is whether enough borrowers are being helped.

The problems with forgiveness programs are not small, including: how to handle bank-owned second mortgages, how to determine which of the underwater homeowners will get the benefit, whether mortgage investors or taxpayers should pick up the tab, and how to prevent strategic defaults among those who want out of their current home and don't think it's fair that others get loan forgiveness.

Several solutions are being floated. One would be for Fannie Mae and Freddie Mac (which together hold about 60 percent of mortgages) to cover the closing costs for homeowners who refinance to a lower mortgage rate. That will move the homeowner toward positive equity sooner, but it means taxpayers pick up some of the tab.

Another idea is for mortgage investors to set up a program where underwater homeowners earn cash rewards for remaining current on their loans, with the payoff occurring after the loan is fully paid. The Wall Street Journal reports that one firm in New Jersey is already doing this.

Do you think underwater homeowners should get mortgage forgiveness, and do you think Congress or the private sector should design the program? Or, do you believe the market should be left alone to correct itself?

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25 Comments
Frustrated
September 28, 2012 at 11:46 am

Yes, The government should assist homeowners. It is our tax money anyhow.
Not everyone lived above their means. Some are just victims of unfortunate circumstances. Some of us had good jobs but got layed off due to corporate executive greed and stock holders. They got bonuses of 50K, I lost my job. They ride in corporate jets while the real workers like myself are left to resort to food stamps and oil assistance.
Never in my live did I ever think I would have to resort to government assistance (medicaid, food stamps, food pantries, and oil assistance). However, if it wasn't for these programs, we would be on the streets and hungry and in more debt. My home was in foreclosure. If it wasn't for govenment assistance programs to help me with my mortage, I would be on the streets. My once good credit is ruined. I can't move if I tried. Thank God I got a new job. Howover, the pay is a third of what I was making before. I am still struggling to pay back debt where my debtors don't with me. Even though my past record shows I was responsible. Unfortante things happen during economic hard times.

Heck Yeah, I am a tax payer, so yes I want assistance.
We (American affluent) will go overseas to adopt children from 3rd world countries, give our tax money to other countries, invest in other countries but yet our tax money is not used to take care of our own domestic affairs and the welfare of the american tax payer.

Don't complain these same people who need assistance resort to stealing and robbing out of desperation.
Not everyone is a walfare recipient.