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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
Peter
August 08, 2012 at 3:40 pm

Really people, try a little research before you show your ignorance!! My home is underwater by over half of what I paid for it, through no fault of mine. I have never been late on a payment. I am forced into a short sale simply due to the bailout of the lenders who issued so many bad loans that destroyed the real estate industry! The bank is selling my home for $147,000. I have paid over $150,000 since 2006. Rather than forgive the underwater amount, they would rather sell it to someone new. I paid $319,000 in 2006, do the math, the bank still gets what I paid in 2006. Who's getting the handout?

Blackie
August 08, 2012 at 3:26 pm

My heart goes out to anyone who stands to lose their home. There has to be a place for compassion in our society. Having said that, I(we) invested in a house 15+ years ago. It was a 50 year old home that made us shudder when we took in the filth left by the last family and the incredible amount of hard work that we knew had to be invested if this house were to become a home. I remember complaining about the tiny bathroom - we had 4 children - and a dear friend laughing at me. "What exactly do you plan to do in there, that you need so much room?" Guess I had been watching too much HGTV and was envious of the people who were living in large, beautiful houses. But we knew what we could afford, and absolutely refused to go past that limit. And the limit was low!! Well, we turned that house into a home, pinching pennies so tight that Abe Lincoln squealed, just so we could make those payments. Today, we're a couple years away from burning the mortgage papers. Thank God we didn't listen to the "wisdom" of the time, but instead buckled down to pay down the affordable mortgage. Not everyone is as fortunate as we were and are. But the bottom line is, we didn't try to sh*t higher than our a*s!

Conestogajoe
August 08, 2012 at 2:21 pm

Somebody needs something give it to them. Show an ID to vote?
No, too much trouble. As for a drug test to qualify for welfare handouts? No, its not fair. Liberalism is wonderful. All you have to do to make it is be born. They will give you everything.
If you work hard and make it you're bad. If you have saved something we will take it from you. All we ask is vote for us so we can stay in power and control every aspect of your life.What has happened to this Country? So sad. Liberalism is a cancer.This is the first time I said this.Don't expect you to
show this because you know it's true.

Conestogajoe
August 08, 2012 at 2:18 pm

Somebody needs something give it to them. Show an ID to vote?
No, too much trouble. As for a drug test to qualify for welfare handouts? No, its not fair. Liberalism is wonderful. All you have to do to make it is be born. They will give you everything.
If you work hard and make it you're bad. If you have saved something we will take it from you. All we ask is vote for us so we can stay in power and control every aspect of your life.What has happened to this Country? So sad. Liberalism is a cancer.

Ronald
August 08, 2012 at 12:47 pm

Some people have the mentality that it is their right to get whatever they want. The US government has been too lenient in their giveaways. Some area welfare programs even go as far to say the welfare recipients have to have a car that is not more than two years old.
Is it any wonder that people have the idea that the taxpayers will bale them out if they can not make payments on their own.
Everybody needs to take responsibility for their actions and decisions. No bailouts, including businesses.

kar
August 08, 2012 at 12:21 am

There should be criteria to meet in order to be considered for forgivness. There will always be those who truly deserve it due to the death of husband/wife/partner. divorce, illness, etc. vs. someone who spends more than they make and thinks someone will be there to pick up the tab. I'm in this upside down situation due to divorce and my ex drove our credit into the ground. Thank goodness I had no credit cards but I worked with the IRS, utility companies, car loan company, and the mortgage company to pull things up. Keep in mind, if you're with a mtg company vs a bank, they sell you and at this time this new co I was sold to several months literally from one month to the next in order to get ahead in collecting my real estate taxes and even went so far as to collect my homeowner's ins payments from my ins co evwn after I had pd it for the year. Something's not right with that one! So, I'm trying to modify my loan and will think about a short sale towards the end of the year. It's not because it's happening to me, but under these circumstances I hope the difference is forgiven after all the financial difficulties I've gone through and efforts I've made to make it right. I'm a teacher and have budgeted until all I've eaten is tuna and green beans! Just when you learn all the answers, they go and change all the questions! Much luck to everyone!

tgardengirl
August 02, 2012 at 3:11 pm

No Forgiveness I see these people take more chances because they want the government to bail them out and they keep their money hidden.They are as bad as the fat cats in government.Hey Maybe I will buy a house and can;t afford it,but maybe I can have a house that way.Let's all cheat,what happened to working hard to pay your way.I guess the government would rather that I don't try so hard to be American and live the American Dream. WE NEED NEW GOVERNMENT THIS GOVERNMENT IS GOING TO MAKE US ALL BROKE.

Mag
August 01, 2012 at 10:48 pm

agreed with Sunrise.

SUNRISE
August 01, 2012 at 2:06 pm

I agree they should not be forgiven. I do think that the banks could lower the interest rates on the mortgages though. Know someone that had an interest rate of 8%, and the bank would not lower their rate. They walked away from their house. If the bank showed a little kindness, and lowered the interest rate to 5% the bank would still make money. Especially when my savings account is not even making 1%. These people during the course of their mortgage had multiple unemployments and got behind and then got caught up and then got behind again. They just got fed up with the banks not working with them. They walked.

sugarbike
August 01, 2012 at 11:28 am

NO forgiveness. We all signed a contract for our loan and right or wrong we are responsible. I had to sell a house at a loss and still are making payments on it. If you think we should bail these this group out then I want to get back my losses from MF Global.