The U.S. Treasury Department, Congress, and private investors are proposing another "new idea" to help troubled homeowners. According to recent studies, about 25% of homeowners who are in trouble are either upsidedown on their mortgage, or delinquent in payments, and have average debt ratios of approximately 59% of their gross income. In addition, approximately 25% of all homeowners have a first and a second mortgage.
The "new idea" proposes that the second mortgage holders write down the balance enough so that the combined balance of the first and second mortgages equal 96.5% of the current home value. Then the homeowner, if qualified, could refinance both mortgages into a new FHA loan. Studies show that approximately 1.25 - 2 million homeowners would qualify.
This idea is good on several levels - it would put ample funds (in the form of new loan fees) into the FHA's account (which greatly needs funds). It would allow first mortgage holders to be paid in full the outstanding balances, and the principal reduction would help homeowners without lowering interest rates, which would also make the new mortgage more attractive to new investors.
The problem is, that the big four holders of second mortgages are the same mega-banks (Wells Fargo, Bank of America, CitiBank, and JP Morgan Chase), are holding out until they see what types of new incentives they will be offered to say yes. And of course, the other catch is that this program, as with all the programs that have been suggested and even implemented to date is that participation by lenders will be voluntary.
Most consumers are tired of bribing the banks to do what they should be doing anyway, without the bribes. What makes this proposal different (and perhaps, hopeful) is that it was submitted by a group of investors known as the MIC (Mortgage Investors Coalition). These are the investors who own the mortgage-backed bonds, and they intend, as private money, to break the blockage that exists between the government and the four banking giants. Maybe they will succeed where others have failed. They already have the support of the House Financial Services Committee.
New Proposed Loan Mod Could Benefit FHA and Millions of Homeowners
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