Hi there: I hope you're well. We're still looking for sun here. Oh well!
I was reading this morning about the proposed principal reduction idea being floated. In a nutshell, it would allow homeowners to have their principal balances reduced to at or closer to what their home is now worth. Ironically the two biggest naysayers are Fannie Mae and Freddy Mac.
The opinions shared in the article were in favor and felt that the two big entities were short-sighted. Fannie Mae and Freddy Mac believe they need to protect their investor's outlay of $150 billion.
What are my thoughts? I think and agree with the pundits who argue the reverse is more unpalatable. That is that people are walking away from their mortgages often because their balance due as compared to value is so out of whack. The argument is if principal balances were reset people would be more motivated to stay in their homes. The other part is it would stop all the foreclosures and short sales going on. It might allow the housing market to improve faster for this reason.
In a way, it's a double-edged sword. The lender would be asked to rewrite down the mortgage balance; something they're probably lukewarm about doing. On the other hand, we all know how expensive it is for the banks to foreclose (the cost has been pegged at $50,000+/home) or how much they already lose in a short sale.
What's most at issue here is the American psyche. I've never been one to argue we shouldn't be responsible. Perhaps here we need to be flexible about this principal reduction idea. If it gives the American consumer confidence (something very few of us have had in abundance since 2008 if not before) then we may be well on our way to recovery. As it is now, I still think we have a ways to go; especcially since the real estate market is such a key indicator.
What are your thoughts? Good, bad, indifferent? I'm curious. Have a great day!
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