This week the administration came up with a new plan. Their intention is to help people who are currently living with a
mortgage on a home that is worth less than the face value of the loan, get a lower payment. For those who don't follow home lending very closely, the problem right now is that if you owe say $150,000 on your home and it is only worth $120,000 then you are shut out of refinancing to take advantage of the historic low interest rates.Right away I started hearing negative comments that this would "help as few as 250,000 homeowners" but certainly no" more than 1 million." That this just was "not enough" and would "never help the economy to the extent that it needs to be helped." And on and on and on.
First I would like to say ....come on people, just stop it! The negativity is not helping and since when is helping up to 1,000,000 people stay in their homes NOT a good idea? I bet it is going to feel like a real good idea to those people. I bet the banks will appreciate having up to 1,000,000 loans no longer at risk of default. Most of all I think we should note that there are several very fair parts of this proposal. First, homeowners have to be current on their mortgage. No one can say that bad behavior is being rewarded. Secondly, no one is getting any principle reduction it is just a rate reduction. The program will simply help get around some rules about loan to value ratios that where set in place in different economic times.
Personally I think the administration should be given some credit for coming up with a proposal that is pretty positive. It is not a giveaway - it will not be another program to throw money at. It is an adjustment of terms that will create a relief valve for hundreds of thousands of homeowners in a troubled economy. Sure there is more to do but this is a pretty reasonable step in the right direction.
THE DIRTY TRUTH:
As a full time Real Estate agent I can tell you very clearly what I see. It is very easy to paint one big picture of struggling homeowners as either deadbeats who won't pay their bills or unfortunate scenarios of health issues and job losses. But there is a big middle ground full of people that do not fall into either category. Every week I sit with people who are on the edge. They see homes just like theirs selling for $100,000 less than they paid. They have huge financial pressures on them. They are struggling with pay cuts, layoffs, increased work loads and rising health care costs. It may not seem "responsible" but I have to tell you these people are seriously contemplating walking from their mortgages.
Sure they can make the mortgage this month and perhaps next month but they are on edge. There is a temptation to go that route. They feel so close to the breaking point they are actively considering it ..they are thinking "it wouldn't be so bad to have to rent for awhile" These people are your friends and neighbors. The receptionist at the insurance office, the retail store clerk, the cable TV installer, the retired couple next door who sees their nest egg dwindling much faster than they ever imagined it would. We can insist that what they are thinking about doing is not right - not fair - but IT IS REALITY.
THE REALLY BIG DEAL:
This is why the current proposal is such a big deal. By preventing the "on edge" section of the population avoid this choice there is a much larger ripple effect. Preventative rather than reactive. By putting several hundreds dollars a month back into household budgets, with a policy change not a giveaway, we are taking a step towards housing market stability that is much bigger than people may realize.
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