Does Obama really want to reduce people's mortgage principal?

[TNDemo]

Apparently Biden mentioned it in the debate. Was that misspeaking or for real? I am all for allowing people to renegotiate the terms of their mortgage if it will keep them out of foreclosure but not the amount of the principal.

[sandnsea]

1. Yes, and it's part of the new FHA program

It needs to be expanded because the program doesn't help enough people.

[Rage for Order]

15. I agree

Specifically, it needs to be expanded to include me. It would help me a great deal if someone would reduce the outstanding principal balance of my mortgage by $50k - $100k. I've made all of my mortgage payments on time, but I don't think that should disqualify me from benefiting from the bailout package that I'll be paying for for the rest of my life.

[sandnsea]

16. Your mortgage has to be over 31%

of your income and I think has to have been an arm of some sort. If the value of your house is $50-$100,000 lower than it was a couple years ago, then I would say you need to be talking to someone about how you might fix that situation. The most FHA is reducing now is 15%, iirc.

[Rage for Order]

17. I was being facetious

Somewhat, anyway. I have a fixed rate loan with a good rate, and my area hasn't gotten pounded by a huge drop in home values. Of course, we didn't have a drastic run up in home values either.

My point is, if you're going to essentially give people $50k (which is what you're doing if you write off $50k of their mortgage principal balance), how is it fair that people who have been responsible with their money don't get a dime? I'm sure a good portion of those people who are upside down on their homes got that way because they refinanced their home every couple of years when home values were skyrocketing, using their home equity like an over-sized ATM and taking out tens of thousands of dollars in cash in the process. Now they get even more cash handed to them because property values have fallen? Yeah, that's fair.

[sandnsea]

18. I figured

but thought I'd point out what is available in the hopes that you would see the errors in your thinking. I guess not.

I bet you opposed the "bail out" too.

[Rage for Order]

19. Somewhat

I opposed the haste with which it was passed. I would've liked to have seen more deliberative debate, hearings in Congress with the pros and cons clearly laid out by economists who supported and opposed it, and I'd have liked to have seen more options considered than the 2 plans that were put forth.

On edit: what are the errors in my thinking re: the reduction of people's principal balances? Explain to me how it's fair. I'm all ears.

[sandnsea]

20. Helping people who are cheated is always fair n/t

[Rage for Order]

21. I agree

And if my principal balance is not reduced along with those of all the people who were irresponsible then I will definitely have been cheated. There won't be any distinction made between first time homebuyers and those who refinanced their home 3 times in 4 years, taking out tens of thousands of dollars in cash with each refi.

Did you feel the same way about all the people who lost thousands of dollars investing in Pets.com (to name one internet stock example)? They bought something that they thought was worth a lot more than it actually was, and they ended up losing a bunch of money. Why weren't they bailed out?

[Stellabella]

2. If it keeps people whose mortgages are upside down

in their houses, he wants to.

That will save neighborhoods, protect the tax base, etc. etc.

[ben_meyers]

4. And I paid too much for my car, I want a price reduction too!

n/t

[Stellabella]

6. That's not the same thing.

If you lose your car, you lose you car. If a family gets kicked out of a house, a vacant house brings down the nearby home values, is a magnet for vandalism and even crime. Thieves will steal the copper from the house, making it a safety risk (houses explode). And the domino effect continues; other home prices fall, mortgages go upside down, people get kicked out of a house, a vacant house brings down the nearly home values ............

[Hassin Bin Sober]

35. That's what the "me too" cry babies can't seem to grasp.

I have friends who bought near Phoenix in 2006 for $300k - nothing fancy - just a three bedroom home. Out of 60 homes, 15-20 are now foreclosed. The homes have now been stripped of anything of value including copper pipes and air-conditioner units. The going price is now as low as $140k for the same home my friends have.

This is an extreme example, but having a home sit vacant does no one absolutely any good. The bank will end up with LESS THAN market value in the result of a foreclosure all the while dragging down the neighbor's values and increasing crime in the neighborhood.

[Stellabella]

37. Yep. It's a real disaster, on a nationwide scale.

I'm sorry about your friends.

[thunder rising]

12. Your car is like Avocado Green it's never coming back.

Bottom line is ...too bad.

[Hassin Bin Sober]

34. File Chapter 13 and you CAN get your car loan principle reduced to fair market.

Either way you look at it, the lender will only receive "fair market" value after the repossession. In both proposed real estate and existing auto loan statutes, the deal makes sense for the lender too.

[glowing]

3. In Bankrupcy court, if you have more than one home, the judge may

change the principal to help the person out.. Its not a rule in favor of those with one home.. they want to change the bankrupcy law so that the judge could negotiate a price reduction that keep the homeowner in the home and still paying the bank.. I'm assuming the judge would recognize what is fair for all parties... essentially, all those arms could be re-negotiated to keep people in their homes.. and reality is on a reduced principal with a 6 or 7% interest would still make the bank a ton of money and give them a secured loan to bundle the asset against.

[dhpgetsit]

7. You have to be careful not to reward...

sellers who might try to game the system by selling property at inflated prices, with buyers knowing that they can get the principal reduced. Who pays the difference? The bank or the taxpayers?

[Oregone]

10. How can anyone "game" the system?!? The bubble is gone....the homes already sold at inflated prices.

People have a $500 K mortgage (which will probably cost them $1.5 million in interest if paid off till full term) on homes worth $220 K. They are paying interest (however you adjust the terms) on principle that doesn't reflect the value of the home.

Look, this is a drastic approach, but again, drastic times. Until I see better ideas...

[glowing]

11. Most people are not going to want to go into bankrupcy in the first place...

It means that things are really bad. Most Americans are honest people.. now, people who know the system and use the system are not American.. they are just asses and are frauds and will always be out there.. and mostly we elect them, and when we find out they are frauds, they become lobbyists...

AND who do you think is benefitting on the reduced price on the mortgage of their second, third, fourth, or fifth home.. not normal Americans.

[flvegan]

5. Negotiating the principal is a mistake. A big mistake.

Negotiate the terms. Knock the interest rate down, extend the length of the loan.

[Somawas]

8. You do know that there are subprime loans with negative amortization,

right?

[flvegan]

9. Your point?

[Somawas]

33. Drawing you pictures is not my job.

[sandnsea]

14. For a house that has lost 25% of its value?

People will just walk away.

[flvegan]

23. They'd walk anyway.

People that WANT to keep their homes will negotiate a good, fair rate with a lender. They've got 10, 15, 30 years to get their value back.

[sandnsea]

24. The lenders won't refinance

on a $200,000 mortgage if the value of the house is $180,000.

[flvegan]

25. At what point did I mention refinancing?

I'm talking Modification. Default resolution.

[sandnsea]

26. That's what they do, they refinance

You have to get an appraisal and a new fixed rate loan. I know lots of people who have gone through this.

[flvegan]

27. Who is "they"?

In this market, if you want to keep your home, you can't refinance. You rework the terms of your existing loan because you can't meet the requirements to satisfy the loan you're paying on.

[sandnsea]

28. The lenders require an appraisal

At least the people that I know had to do it that way.

[flvegan]

29. The loan is already made on a modification.

No appraisal needed.

[sandnsea]

30. Again

The people I know have had to get an appraisal before their lender would do anything with their loan.

[flvegan]

31. Okay, well

that's unfortunate, because those particular lenders are stupid. Seriously. As a title underwriter, we try to steer the thousands of loans we see towards resolution. It's shameful what this has become.

[sandnsea]

32. Well now they just lie and con

Some of these lenders are still trying to sell no interest arm's. It is shameful.

[Hassin Bin Sober]

36. This remedy already exists for car loans in Chapter 13.

Car loans can be reduced to fair market value.

Why not extend the same protection to homeowners? As you know, a foreclosure does no one any good - INCLUDING the bank AND the neighbors/neighborhood.

[PsN2Wind]

13. Sorry but I don't agree with reducing the principal

A contract was made between a seller and a buyer as to what they agreed the value of the property was at the time of purchase. The sellers got their money, the buyers got the home and the bank put up the money that allowed the deal to progress. I'm sorry that people bought homes at inflated prices, but warnings about a housing bubble aren't new and should have been considered. My wife and I saved the money to pay cash for a very modest retirement home and I don't feel I should be asked to pay some part of the principal for someone else's home.

[rucky]

22. How about a temporary reduction

Due when they sell their home. This is the talk I've heard of the program.