Lets start with debt reduction. Basically, this amounts to lenders forgiving a portion of the principal balance of the loan an owner has on their primary residence. It’s been happening and will continue; however, controversy surrounds the practice. Why reduce one person’s principal and not everyone’s principal? Who pays the cost of these reductions? Most importantly, who makes the decision as to who gets a reduction and who doesn’t?
I want a reduction on my loan, I’m sure you do and I bet my neighbor does as well. One of the purposes of the Taxpayer funded HAMP (home affordable modification program) was to write-down principal of non performing loans. In this case the taxpayers, those of us who pay taxes, paid for some homeowners to enjoy a reduction in what they owed on their home. In most situations, you had to be in default to take advantage and apply for such gifts. So the moral dilemma begins, should I stop paying so I can negotiate my loan balance and or interest rate? I have experienced this craziness first hand. While trying to assist owners with a short sale or to negotiate with their lenders on their behalf some lenders have told me, “we really can’t help them because their loan is current”. I cannot and will not suggest to anyone that they should stop paying their mortgage so the banks will discuss a modification with them. That’s a personal and moral decision. They borrowed the money and it’s not their fault that the price of their home dropped. But, it’s not their neighbors fault either. So why should the neighbors foot the bill? Do you see the problem? It’s around and around the mulberry bush.
Many lenders got some bail out money. What did they do with it? Some are doing write-downs if they had agreements with the government to do so. Some are doing debt forgiveness behind the vail of HAMP. Where did the government’s money come from that they used to bail out the banks? Why were the banks bailed out and not the homeowners directly? Too big to fail? Not if Uncle Sam fills the banks pockets again with your tax dollars. Write-downs are growing. In 2010, 11 percent of mortgage modifications were write-downs (forgiveness of debt). In 2011, that number jumped to 40 percent according to Amherst Securities Group. These write-downs have grown and so has the controversy surrounding them. Who decides who and why one person gets a write down and not everyone? I cannot find an answer to that question and it’s alarming to me and should be alarming to you as well.
So far mortgage giants Freddie Mac and Fannie Mae have declined to do write-downs. Now those guys got a lot of Uncle Sam’s money but no write downs. Why? Great question. Write or email your Congressperson and ask them. It’s a fair question.
Moral Problems with Foreclosure and debt forgiveness. I couldn’t stop paying my mortgage just so I could start negotiating with a clerk in a cubicle on the off chance that I might be one of the privileged ones. But many people can. They see no way out. The lenders won’t negotiate with them if their mortgages are current. So, what to do? If we give more money away for debt reduction, will this cause a run on the banks? What if everyone stops paying and we all get bailed out? Is that the answer? This is tough. There is a lot of anger, frustration and war stories surrounding this debate.
Personally, taking money from one pocket and placing in another because someone else tells you to never made sense to me. The real estate collapse is the responsibility of many people and organizations. You cannot point the finger in one direction. Wasn’t it the government who pushed the initiative to lower underwriting standards so “everyone” could own a home? Wasn’t it the lenders who went along with it and sold mortgages for those homes? Wasn’t it Realtors who showed those homes? Wasn’t it educated individuals who wanted to buy those homes?
And how about the crash? Who can we point the finger to on that? Is it the government who pushed you to buy? Was it the mortgage companies who gave out easy money for you to get a loan? Was it the real estate agent who encouraged you to buy? Or, was it you who just wanted it now regardless of the risk?
This won’t be settled efficiently by our government. I guarantee you the final result won’t be fair and will cost you and me plenty.