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It appears more U. Bank of America officials, for instance, recently announced it will cut the unpaid mortgage balances for , borrowers. Do you think principal-reduction programs in general will help the real estate market? : 7 Yes, 3 No. Home mortgages are non-recourse to the borrower. As such, we must look at what actions maintain the greatest value of the asset securing the mortgage home. Countless studies have concluded that a home in the foreclosure process degrades in value more than a home in other alternative debt settlement processes, such as debt forgiveness whereby the owner continues on all other ownership commitments.
What amazes me is that it took the banks this long to figure this out. It should have been enacted three years ago — wow to the wisdom of our fast-to-react big banks. Bradley Mortgage in San Diego :. There is a moral hazard with selective principal reductions that cannot be overcome. Those homeowners would get nothing except another slap in the face. How long before they stop making their payments in order to qualify for principal reduction? It goes on and on…Not to mention, who will invest in mortgages if their investment can be slashed? Yes , it will help some borrowers and should bring some stabilization to the market.
Fewer short sales and fewer foreclosures are good things and may stabilize prices in some markets. However, we still have to address second mortgages that will not just disappear and could make principal reductions impossible. Furthermore, each homeowner's ability to pay needs to be evaluated on a case-by-case basis like how far underwater the loan. Otherwise it would be like throwing water on to a sinking ship. Principle reductions for mortgage holders would place more properties in a positive equity position thereby freeing more people to sell. Since our real issue in San Diego County is the lack of inventory of homes for sale, this could have a positive impact on the market.
Buyer demand continues strong due to affordability and low interest rates. If more homes were available for the buyer pool, it stands to reason that more homes would be sold and that would be a positive for the housing market in general. Principal loan writedowns by major lending institutions will assist the real estate market in reaching the "new norm" for home valuation and it will also decrease the likelihood of more distressed properties hitting the market and driving prices down to a new low.
What is not needed is additional government legislation to mandate mortgage reductions. A recently proposed bill would run a pilot program through FHA, Freddie Mac and Fannie Mae focused on dramatically reducing home loans. This is nothing more than another homeowner bailout at the taxpayers' expense. Principal reductions have been a controversial issue in recent years.
On one hand, they would help the 11 million or more people who are under water in their mortgages. On the other hand, there is an issue of fairness and how to decide who gets helped and who pays for the reductions. If we leave aside these issues, principal reduction would help the real estate market.
Negative equity is a major driver of default and principal forgiveness is more effective than principal forbearance in deterring default. Reductions in the distressed inventory would reduce some of the downward pressure on house prices thus helping the housing market. Second, reduce the time that foreclosed-out buyers have to wait before they can be approved for a loan again. Third, eliminate appraisals on homes and condominiums for a period of one year so the market determines the price, not the appraiser. Americans are ready to buy, but are being hindered by Federal government lending regulations that most often have the opposite effect of their original intent.
No , because with approximately 5. To qualify for most of these principal reductions, a homeowner must be 60 days late on mortgage payments, and be upside down. The influence of this program largely depends on the quantity of homeowners who successfully complete the principle reduction, and to the extent that it still makes monetary and strategic sense for the owner to remain in the home.
Yes , principal reductions will provide more than a temporary solution for some homeowners who would otherwise face higher payments on underwater mortgages. Permanent principal reduction will probably avoid having a percentage of those homes enter the short sale or foreclosure market and create further downward price pressure. Principal reduction programs will create a problem of moral hazard. The unintended consequence will be to encourage strategic defaults by some borrowers in expectation that they will be relieved of their obligation to repay debts that they willingly incurred, creating financial problems for the pensioners holding the mortgages.
Yes , this can help if it is done for the right people. It can help motivate financially capable people to not walk away from their upside home. The problem, however, is that the banks many times will only do this for people who have missed payments and typically have some type of financial hardship. I feel the homeowners who can afford the fully amortized loans after the principle reduction are the people the banks should be targeting but unfortunately that is not the case.
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