The owner of the House about 11 million, about 25% of all homeowners, owe more debt on their home from a decent home, hence the term "mortgage under water". Most are victims of the housing bubble (2004-2008) driven by easy financing that artificially inflated prices while buying a House, or borrowing against their homes there. The interest rate on the mortgage is in most cases is more than 6,5% but home owners are not eligible for refinancing at current interest rates as low as 4%. This means that home owners are paying hundreds of dollars and in some cases thousands of dollars more each month than he would otherwise pay if he can refinance at current rates.
Lenders can already write off the loans to finance or tax reasons, but the borrower is still treated as a whole because the amount of the monthly payment is still due to the terms of any mortgage, including payments on the loan amount has been treated as losses. Every month the lenders get a borrower to make payments under water loans, lenders receive a windfall payment rate far exceeds the current market interest rate. Lenders actually prefer to keep the homeowner credit requirements and debt prisoners more than the value of the House. Imagine how many underwater mortgages are paid each month to the satisfaction of the lenders. Every month the homeowner write cheques on your underwater mortgage is another victory for the lender.
It is in this environment the lender plays on fears the homeowner and take advantage of his moral tendency to pay what he owes. It is clear that if most people stop paying on their underwater mortgage lender will no longer have the luxury of allowing home owners who play the wind. Of course, this will not happen because most people are afraid of the stigma of Bankruptcy and foreclosure and don't want to be among the first to default in what it is not possible the movement of the masses. So most borrowers will act in a way lenders rely on it.
If the President and Congress really wants to help homeowners, the programs that are much broader than the HARP (home affordable Refinance Program) should be established. For example, legislation can provide a subset of Chapter 11 or 13 Bankruptcy for underwater mortgages only, but without the stigma of the word B (ankruptcy). Under this program will be modified underwater mortgages based on reasonable market value of the House, and net worth and income of the owner of the House.
Continuing with this example, home owners that meet the following criteria will be eligible to participate: (1) the House value of less than 85% mortgage, (2) annual PITI (principal, interest, property taxes and insurance) is greater than 30% of adjusted income homeowners (most of the cash income less taxes and more determined permitted cost), and (3) adjusted net (for example, do not include certain assets to be released in the conventional bankruptcy) is less than 25% of the amount of credit. If the value of the House is at least 75% of the mortgage interest rate will be reduced (not below the current market price) and principal amortization suspended (not beyond the original mortgage term) so that PITI will be no more than 30% of the adjusted income. If the value of the home is less than 75% of the debt principal amount of debt will be reduced so that the value of the House is not less than 75% of the mortgage decreases. Debt reduction would be more limited so as not to increase net worth adjusted homeowners more than 25% of the mortgage decreases. Reduction of the interest rate and the delay the principal amortization discussed above also applies to reduce the mortgage so PITI not more than 30% of the adjusted income. In situations where a mortgage is not modified as discussed above because 30% of adjusted income cannot support the payment of a mortgage modification, the program will allow for a short sale with the borrower is not responsible for all or part of the remaining balance of the loan. Most importantly, this program will allow borrowers to immediately reduce the payment of PITI to no more than 30% of income is adjusted until the debt restructuring is completed so as to discourage the lender delays. The establishment of the program itself can make lenders more willing to work with homeowners out of programs.
