Is there any Mortgage Relief for the Average Homeowner?

Is there any Mortgage Relief for the Average Homeowner?

There's lots of buzz about HUD's Help 4 Homeowners program and Loan Modifications.  Average homeowners want to know what's in it for them!

November 1, 2008 

By: Drew Sygit

CMPS, CMLO, CALO, MBA

BLOOMFIELD, MI - The media headlines have a new update or wrinkle about the Federal Bailout of banks daily.  Stories abound also about new programs and initiatives to stem the tide of foreclosures sweeping the country.  All this talk of aid for banks and for distressed homeowners has the average homeowner wondering and hoping there's something in all of this for them.

The latest figures show that roughly 90% of homeowners are paying their mortgage on time and are not a financial risk for foreclosure.  So, why are these homeowners worried and looking for some type of aid?  It could be that recent estimates have nearly 20% of this nation's homeowners being "upside down" in their homes - owing more on their mortgages than the homes are worth.  Another 5% of homeowners barely have any equity in their homes and values are predicted to drop another 10% in the coming year.  That'll leave 25% of homeowners nationwide upside down and perhaps reconsidering what the American dream of homeownership means to them.

 From a pure financial perspective, it makes no sense to keep throwing good money after bad on an asset declining in value.  Especially when you can buy that same asset, next door at a steep discount.  Homeowners everywhere, from the well-off to those cutting corners to make their mortgage payments, are wondering why should they keep making their payments. 

 They also have questions about fairness.  Why is so much being done to help delinquent homeowners, many of whom made foolish decisions buying more than they could afford and taking out toxic mortgages to do so, while nothing's being done to help those that made wiser decisions?

 Our office receives several calls a day from homeowners who are not delinquent on their mortgages, but are upside in their homes and looking for some type of relief.  Most want to know if anything can be done to reduce the amount of their mortgages in light of the falling values of their homes.  Sadly, there are no easy answers for them. 

 Every program and relief effort announced so far is targeted at helping distressed homeowners avoid foreclosure.  Loan modifications are reserved for those facing a viable hardship and even then, a reduction of mortgage balance is not very likely.  Lenders understand that to keep people in homes they just have to make the payments affordable.  On the other hand, homeowners have to show the ability to make the negotiated lower payment, otherwise the lender will just continue to foreclose.

 Hud's new Hope 4 Homeowner program not only requires a homeowner to be delinquent to qualify, but also requires the servicer/lender of the mortgage to take a loss on the mortgage amount that exceeds 90% of a property's current value.  Lenders are not falling over themselves to do this.

 So, why should the 90% of homeowners that are not delinquent continue to make their mortgage payments and not walk away from their upside down homes?  Besides the arguments that they have to live somewhere and a foreclosure trashes your credit record, we can find viable answers in analogies. 

 How fair is our tax code that shifts more of the tax burden to those that do well and gives some of that back as welfare to the poor?  Why are so many leaving their money in the stock market, which has dropped as much as many home values, willing to take a long-term view there?  Beyond those examples we have the fact that something has to be done to break the vicious cycle we're now in - foreclosures cause nearby property values to drop, resulting in more foreclosures, which drives values down further, etc...

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Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMLO, CALO and has an MBA.  He's spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education.  He can be reached at 248-356-3739 & dsygit@TheLendingEdge.com.  His blog:  http://drewsmortgagenews.blogspot.com