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Are you an idiot to keep paying your mortgage?
Kathleen Pender
Sunday, November 16, 2008
Consumer Hot Line 800-603-1996 English 222 Spanish 333 Tagalog 444
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.
The Federal Housing Administration is offering two programs to help homeowners get more-affordable mortgages, FHA Secure and Help for Homeowners. Neither requires borrowers to be current on their payments. The program announced Monday goes a step further by requiring homeowners to be late.
The Streamlined Modification Program, sponsored by the government agency that oversees Fannie Mae, Freddie Mac and 27 loan servicers, promises to swiftly reduce payments for certain homeowners who appear to be on the verge of foreclosure.
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.
The reduction can be accomplished in one or more ways: Reducing the interest rate, but not below 3 percent. Extending the term of the loan up to 40 years.
Reducing the principal on which monthly payments are calculated. The reduced interest payments never have to be repaid.
"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."
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."
Credit score impact
Risking your credit score for a lower rate "sounds like a game of chicken on the lending highway," says Craig Watts, a spokesman for Fair Isaac, which markets the FICO credit score. In the latest version of FICO, which is just being rolled out, "one isolated delinquency will do less damage to your score than it has in the past," Watts says. Consumers who suffer a severe delinquency can rebuild their scores over time by paying all credit accounts on time and keeping their balances low.
"If it was me and I was certain that I could keep my home even after missing a couple payments by working out a deal with the lender, I'd be for keeping the home," Watts says. "Your score will bounce back." |
BofA to pay $8 billion over subprime suit
Bank to modify bad mortgages for nearly 400,000 Countrywide customers
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Charlotte, N.C.-based Bank of America said Monday it will modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 customers of Countrywide Financial Corp., the troubled mortgage lender it acquired last summer. The announcement arrived after the Illinois attorney general's office said Sunday that the bank was modifying loans for customers in 11 states.
Consumer Hot Line 800-603-1996 English 222 Spanish 333 Tagalog 444
NEW YORK, Dec 16 (Reuters) - Fewer U.S. adults would consider buying a foreclosed home now than six months ago, and concerns about foreclosures' risks have risen.
The most recent survey revealed that 80 percent of adults were concerned with the risks involved in buying a foreclosure, such as hidden costs, compared with 69 percent who expressed those concerns 6 months ago.
As a result, more than 75 percent of consumers think they should pay at least a 25 percent discount for a foreclosed home while a third would demand a 50 percent discount, according to the survey. .
The U.S. Federal Deposit Insurance Corp and Federal Reserve estimate that banks will foreclose on about 2.25 million U.S. homes this year, more than double the 1 million annual rate before the housing crisis.
Of October's sales, 45 percent were 'distressed' -- meaning they were either short sales, where the price is less than the outstanding loan, or foreclosures, said National Association of Realtors spokesman Walter Molony.
After Foreclosure, a Big Tax Bill From the I.R.S.
Two years ago, William Stout lost his home in Allentown, Pa., to foreclosure when he could no longer make the payments on his $106,000 mortgage. Wells Fargo offered the two-bedroom house for sale on the courthouse steps. No bidders came forward.
Despite the setback, Mr. Stout was relieved that his debt was wiped clean and he could make a new start. He married and moved in with his wife, Denise. But on July 9, they received a bill from the Internal Revenue Service for $34,603 in back taxes. The letter explained that the debt canceled by Wells Fargo upon foreclosure was subject to income taxes, as well as penalties and late fees. The couple had a month to challenge the charges. For those who struggle to pay their bills, who watch their housing payments rise out of reach with their adjustable-rate mortgages, who lose a job or who fall victim to illness, losing one’s home can feel like hitting bottom. But one more financial indignity may await as the fallout from the great housing boom ripples across the United States. “Getting that tax bill,” Mrs. Stout recalled, “my first thought was that I needed to see my family doctor to help me with my stress, because we had a big mortgage and other debt and then here came the I.R.S. saying we owe this.” Notices of unpaid taxes, unanticipated and little understood, will probably multiply as more people fall behind on their mortgages, said Ellen Harnick, senior policy counsel at the Center for Responsible Lending, a nonpartisan research and policy center in Durham, N.C.
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