One of President Obama’s populist moves in the whole home foreclosure disaster in the past has been about trying to keep families that can’t afford to make their home payments right in their homes where they belong, getting them to not leave.
But different times require different measures, and now the government is trying to offer some families incentives to not keep their homes. The government will pay you a bit of cash if you will surrender your home for less than what you owe on it, and for less than what your home market value is.
More than 4 million homes around the country are struggling with their mortgages, and stand to lose everything to foreclosure. And the government’s $75 billion budget to help them doesn’t go really that far.
From consumer advocates to geeky economists and even financial experts all feel the government needs to get involved a bit more. And the government sees that to have millions of families out of house and home in an election year, cannot possibly be a smart political move too. It would only make the country’s economic recovery a whole lot slower, and make it look bad come November.
When it started on April 5, the program attracted hundreds of thousands of crisis-struck homeowners who haven’t found any succour with the loan modification program – you know, the one that lets you settle on your home for less than what you actually owe. And the banks that hold a credit slip from you, have no choice but to accept what little they can get – they just let go of the difference between the actual home market value and what they believe they are due.
Take an actual case in Colorado. A homeowner owes $100,000 to the bank on his home. He has listed his home with a broker, to try to raise some money selling the house. The bank won’t settle for less than $75,000, and he isn’t getting any more than $35,000 in offers for it – that’s the home market value for it. So, he has no choice but to opt for foreclosure.
Now, there are other parties involved in this debacle – there is the investor that owns the loan, the bank that services it, the other bank that holds the second mortgage, the hapless homeowner, and the government that’s trying to keep things working. Here’s how the new program will go – the banks that service the loan, will get $1000 apiece. And the home owner himself would get maybe $2000 to help him cope.
In the beginning, te banks would never hear of settling for anything less than they were owed. They didn’t care if the home market value had long since fallen. If the owner said that he was going to default unless they accepted a lower settlement, why should we believe him?
It was only towards the end of 2008, that so many people began to plead inability to pay the lenders that huge entities like Fannie Mae, decided that they might as well deal. With the new federal plan, the government takes over your home, thrashes is out with a real estate agent and the lender, and sells the house. The homeowner will never hear what they got on it. He just gets let off the hook.
Usually, this would work if you don’t have a second mortgage on your home. And the banks don’t want to let you off the hook that easily either. They’ll need to know that you have done everything in your power, and sold your soul trying to repay the bank, before they’ll give you a chance to walk away like this. Howeverin lots of places, they will let you just wash your hands of the whole thing if you will agree to such a settlement.