Our New Mortgage Plan

From the San Francisco Chronicle this weekend....

You have to read this one to believe it.........how did we get here????

PB

Are you an idiot to keep paying your mortgage?

Kathleen Pender

Sunday, November 16, 2008

Should you keep paying your mortgage?

If you have significant equity in your home, absolutely.

If you don't, it's getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.

Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.

Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.

But what about the moral obligation to pay off a debt?

Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he "recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford."

How to qualify

To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home's value. It's fine if you owe more than it's worth.

Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.

If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment - including property taxes, insurance and association dues - to 38 percent of your gross income.

The reduction can be accomplished in one or more ways:

-- Reducing the interest rate, but not below 3 percent. (The new rate, if below market, goes back to a market rate after five years.)

-- Extending the term of the loan up to 40 years.

-- Reducing the principal on which monthly payments are calculated. Unpaid principal is added to the loan balance and due when the homeowner sells or refinances. The reduced interest payments never have to be repaid.

If you owe more than the home is worth, the plan will only reduce principal down to 100 percent of market value, according to an official for the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac.

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

"This is a once-in-a-lifetime opportunity," Schiff says. "People are going to feel like complete morons if they don't participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn't afford."

The government is offering loan servicers $800 for every homeowner they get into the plan.

Schiff predicts that loan agents "will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan."

Comments

[Carolyn]

Disgusting!

[Cory]

That is crazy. I wish I was more irresponsible.

[amanda]

It is tempting to think this is nothing more than an open door into socialism. Would the people at the top offer something like this just to be nice? There is most likely something they will gain from it in the long run. Owning all our homes for us perhaps? I don't know, I'm uneducated in these matters.

[Fawn]

makes me wonder how much those same loan servicers were paid to get those same home buyers into too big of a loan to begin with... $800 per loan is a nice bonus.

[Jim Mather]

we are in deep trouble when the government enables people to destroy the country