The Mortgage Refinance Relief Mess
Aug 22, 2010
Posted by Jody Eisenman | Filed under Uncategorized
As has been well documented, the residential real estate market has been a mess for years. Thanks to predatory lending, NINJA loans (no income, no job, no verification), ridiculous standards, you name it, many homeowners now own homes that are worth less then the mortgages. According to zillow.com, this number is currently 21.5%. There were clearly many homeowners who purchased homes they could not possibly afford. I remember reading a story in my local newspaper awhile back about a woman with a take home income of $2500/month, who purchased a home with a monthly mortgage payment of over $6000! She went into foreclosure soon after. Her only comment was, “I just wanted to own a house”. Whether many of these people were foolish or mislead, the fact remains that there are lots of folks that cannot keep up payments. As a possible solution to this, The Obama administration instituted a mortgage relief program, intending to help three million homeowners. By and large, it has been a failure. Part of the problem was paperwork; the system was unable to keep up with demand. However, another problem soon became obvious. Although only about 600,000 homeowners actually have qualified since March 2009, almost half have fallen out of compliance. This, despite the fact that many qualified for rates as low as two percent for a 5 year period. The reason for this is simple: Many of these people could never afford these homes under any interest rate. Plus, many more have faced loss of or reduced income, which led to an inability to pay. The point is, why have a program to provide mortgage relief when all it is doing is postponing the inevitable. On Wall Street, we have an expression for this. Its’ called “Rearranging the deck chairs on the Titanic”.
August 26th, 2010 at 3:22 pm
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