Low expectations for new loan help program

Source: AP

WASHINGTON — Dial back the pie-in-the-sky projections.

Last month, the Obama administration launched a program to help homeowners with loans insured by the Federal Housing Administration. About 850,000 FHA borrowers are behind on their payments or in foreclosure, yet the program will assist just 45,000.

(snip)

Nationwide, about 17 percent of FHA borrowers have missed at least one payment or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

(snip)

For each loan modification, the government will pay the lender up to $1,250. If 45,000 people sign up, that works out to around $56 million in costs. But HUD estimates the program will ultimately save $370 million in losses from avoided foreclosures.

But there's a catch: Borrowers who spend more than 55 percent of their total pretax income on any recurring monthly debts including home and car loans and credit card debt are out of luck. Officials say the risk that these debt-burdened homeowners will fall behind again is simply too high.

Read more: http://www.google.com/hostednews/ap/article/ALeqM5iIR1Kx1yLRRkEydxgSBNqM-YxN3QD9AQEIEG0

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Band-aid, chest wound. :(

Many people don't realize this, but every last one of these modification programs requires that the borrower give up non-recourse status when they sign the modification.

What does this mean? It means if they want to walk away now, they can do so cleanly, with only a hit to their credit record. But if they give up recourse, that means the banks can go after them for the rest of their lives for the banks' losses, should they default again - and almost all will.

A little temporary help for a lifetime of debt slavery - it's no surprise they expect little participation.

The real danger is not from the banks pursuing deficiency judgments, it lies with the 1099C you may get from the IRS.

...And I believe you can escape paying it under certain circumstances. Mortgage Relief Act, I think?

On the other, not everyone deserves to walk away. I would argue, however, that the bank should share some responsibility in the risk taken. The house is the collateral on the loan; if the loan is defaulted upon, the home should be seized. Additional money should not be pursued, IMO. :shrug:

If the bank writes it off as a loss, they HAVE to send a 1099C. The IRS is pretty strict on those types of things :). And unless a bank wants to get creative with accounting, usually they have to write it off as a loss.

I pretty much agree with you on that.

...but the bank can chose to write off the loss OR go after the debtor for the difference, correct?

I suppose they could just sit on the debt indefinitely, but that doesn't really make any sense.

.............I swear, a lot of their policies (including the "latest" healthcare bill) seem like a Republican would have thought of them. Again, this is not the change I can believe in.

This can't be right, can it?

:shrug:

:dem:

-Laelth