Archive for October, 2011
Looks like something is brewing with the banks but it is not likely to be ready for Holloween. Huffington News reported Banks ( BOA, Chase, Citi Mortgage, Wells) just to name a few are thinking about Principal reductions to help homeowners. Resisting this concept of Principal reduction is Fannie Mae and Freddie Mac.
Its kind of scary the banks are actually thinking logically here with a program that might actually help the housing market. As a realtor involved in the distressed market I have been consistent with my feelings that the only way to solve the houseing crisis is too look at the whole picture.
I support this concept of Principal reduction as I feel it is a WIN WIN WIN situation for all homeowners whether you are in distress or not. If principal reduction is done properly then the housing crisis will begin to correct itself.
First Principal reductions should not be automatic. It should be based on current market values. Anyone could be eligible to refinance their home at the current market value with one stipulation. The amount reduced is not forgiven but just a forebearance until the property is sold. So inother words homeowners will become equity partners with the bank on the forebearance amount of the new loan and will share in the future benefits when sold. This is a paper transaction so banks show no loss on their books and preserve their capital requirements, continue to get stream of payments on the new loan, and can start lending on new loans. Win for Banks.
For the homeowner it is also a win. Those who are struggling will now be able to afford a new mortgage since it is based on Principal reduction, lower interest rates, and longer terms thus keeping mortgage payments affordable. This is what is needed to keep people in their homes. Win for Struggling homeowners.
Finally those homeowners not struggling will also benefit by this because as more homeowners struggling are able to refinance and keep their homes less homes will be foreclosed and home values will begin to stabalize. This is a Win for homeowners in general.
I wish Fannie Mae and Freddie Mac would embrace this Principal Reduction Plan and see it as a way to stabalize the housing market.
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