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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
Hollie A Ryder
August 31, 2012 at 8:29 pm

A)One does not own a house if there is a mortgage, B)Allow the market to work for a change. I am unaware of anytime that some enity has not interferred because it would be different since they had more insight etc. than anyone in prior similar situatiions, B.S., M.S., and PhD., C) There should be no loan forgiveness or any other freebie due to over extending ones financial obligations, D) Vote out all incumbents since these are the people who have the country in a position of bankrupcy if the country were a person of company. The elected Congress and President are financially illiterate as a group.

Fran Miller
August 31, 2012 at 4:58 pm

What is ignored is the fact that during the first five years of any mortgage, 80% of payments are for interest. The banks have already made their money and could easily rewrite the loans if they were not tar-babies entangled in a briar patch of collateralized debt arrangements. Home equity, more than anything is symbolic of the false prosperity of the past twenty years. To allow the market to clear and seek a new equilibrium is just a vicious downward spiral that ends up with Barack Obama being foreclosed out of the White House because of the national debt. The rent-seeking, money-changers need to shake the Etch-A-Sketch and declare a Jubilee.

Jacks
August 31, 2012 at 4:37 pm

I don't want anyone to pay my way but me, however, like the previous poster said, my mortgage company didn't even want to consider an agreement unless I was behind and when I fell behind because I lost my job, they couldn't help either because by the time they "resolved" the issue I was already working and making too much money...really? I incurred over $20000 in debt during the time I was off work, and now I can't even refinance because my credit is ruined! And it irks me to see others who knowingly obtained these ridiculous 1% loans just so they could buy a McMansion or other toys get off scott free and still be able to get better deals on mortgages than I can!!

David
August 15, 2012 at 1:27 pm

I don't think I should have to pay so someone could have their boat or TV. When I took out a mortgage in 1997 it was a fixed (higher) rate. Refinanced in 2000 and again in 2001-2. Each time for fewer years. Now it's paid off. Totally debt free. If someone wants to live beyond their means, on future dollars, that's their deal, don't make it my problem.

Duane Price
August 14, 2012 at 3:07 pm

I agree people should pay thier way and I always have,however I find myself some place I didn't know I would.Being foreclosed on last friday after 23 years of trying to make it work.I got caught up in refinance games of the early 2000's and when the economy busted I could no longer keep up.I hurt my back in 2008 and was out of work for 4 months and that was a snow ball effect.Hopefully like others in my position I will get thru this.

Sugarbaby
August 14, 2012 at 2:22 pm

I agree it is not the homeowners needing to be "forgiven" that is the issue, it is the banks who have received billions of taxpayer dollars as a "bailout" then turned around and refused to lend, refused to work with homeowners to lower their rate, refused to subordinate second mortgages so homeowners can refinance, refused to do anything to help the working taxpayer at all. That bailout is one of the biggest mistakes this country has ever made.

Vitsing
August 13, 2012 at 9:31 pm

NO!!! I have been paying my mortgage and other debts in both good and bad times without Government support. I am not willing to pay for the financial mistakes of others.

Shell
August 09, 2012 at 4:53 am

I am in this situation. I faithfully pay my morgage every month but it is very hard. The bank is unwilling to make any modifications to help. They insist I have to be behind before they will consider. I owe $150,000 on a house only worth $70,000 in a neighborhood that houses won't even sell for $20,000 right now and I don't live in a run down house. Yes, walking away seems sometime like the better option but I want to pay my debt. All I am asking for is a little help. It is a shame that people have to be behind before they will consider anything if at all. Banks are willing to lose money which is even more detrimental to the economy than working with the homeowner. Isn't there some problem with this logic? I think so. So I feel the honest peoples pain. I did not buy a house outside my means or anything lavish. Times got hard and some adjustment is all I am asking for but the bank would rather lose $ 100k than work with me... Terrible...

clifford price
August 08, 2012 at 7:56 pm

no bailout you should pay your way.live below your means.save more.

nofunick
August 08, 2012 at 7:52 pm

Who forced you to pay $319K for your house in 2006. The thinking at the time was that there was no way you would lose money.

You made an investment, just as you would have in the stock market or at the tables of any casino. Your investment went south. I do feel your pain, but the situation you find yourself in is no fault of mine. And I am the government in this country.

As far as reducing interest rates, I bought corporate bonds from Ford Motor Company in 1977 at an interest rate of 17%. There is no way that I would have reduced that rate because they made an error judgement.