Cram This!!!
The Palm Beach Post takes a look at what a contributing solution could be regarding underwater mortgages. That solution involves principal reduction, not just interest rate reduction. While Obama has delivered another flavor of the month program, it does give lenders that have mortgages backed by the government the ability to refi underwater mortgages to include principal reductions. The principal reduction is limited to 10%, but it is being construed as a start.
Here’s the issue. This ONLY applies to government backed notes. It does not apply to notes owned by other investors. While a bill was put in front of the Senate this year to allow/require principal reductions, it was crushed by lobbyists. Our mighty government simply can’t mandate that investors write down their notes.
Will reducing mortgages stop foreclosure?
By Opinion Staff
Signs in the yard of a house for sale in Port St. Lucie
In Florida, one in nine households with a mortgage was at risk of foreclosure this summer. This week, the Obama administration will begin yet another program aimed at easing the housing crisis. It’s the first that goes to the root of the crisis — underwater mortgages — but it may do no more good than the others.
Starting Tuesday, the Federal Housing Administration will permit lenders to give those homeowners refinanced loans backed by the government. Lenders must forgive at least 10 percent of the principal. In Florida, where 46 percent of home mortgages are under water, a 10 percent principal reduction means little. Home values in South Florida suffered the worst decline of 25 large metropolitan areas in the second quarter of this year.
Because prices have fallen so far, it will take a decade or longer for many borrowers to erase their negative equity. Many will walk away from their mortgages, adding to the glut of foreclosures and further delaying the state’s recovery. In Palm Beach County alone, $18.8 billion in home loans have defaulted since 2007. “The Obama administration’s housing programs have not been successful at all,” said Jack McCabe, chief executive of Deerfield Beach-based McCabe Research & Consulting. “In fact, I think they’ve been flops. People are so far upside down in their homes you will have to pry some of them out feet first before the house ever comes back up in value compared to the boom years.”
Margery Golant is a Boca Raton lawyer who defends homeowners in foreclosure and a former executive at Ocwen, a large mortgage servicing company. The only way for Congress to help homeowners, she said, is to pass legislation allowing bankruptcy judges to reduce the principal. The procedure, called cram down, is allowed for mortgages on second homes and investment property, but not primary residences. “The only way that we’re going to see any help for homeowners,” Ms. Golant said, “is combination of loan modification coupled with mortgage principal reduction.”
The House passed a bill allowing cram down for principal residences, but it died in the Senate. “We tried,” said Rep. Alcee Hastings, D-Miramar, who voted for the bill. He agreed “without question” that lobbyists killed the bill.
Cram down for primary residences would be a drastic step. But lenders, some of which got bailout money, have invited it. Congress should try again to pass it. If Republicans object, let them propose something that would help homeowners and get Florida’s economy moving.