New Proposals Surface to Help Debt-Laden Homeowners
Several proposals are being touted that would help troubled borrowers and the lenders that gave them loans for their homes, often worth less now than the outstanding loan balance.
Falling home prices and higher interest rates on adjustable rate mortgages have led to increasing foreclosures and a struggle for those who are still managing to make their payments.
Among those owning a home that is worth less than the outstanding mortgage is Memphis, Tenn., lawyer Stuart Breakstone, the New York Times reports. He had to pay his lender $65,000 out of his own funds when he sold his old house because the selling price was less than the mortgage balance. Now the $670,000 debt on the new home he owns along with his wife may also be higher than the value of his house.
“I used to think,” Mr. Breakstone told the newspaper, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.”
The proposals under consideration include:
–Bank of America, which has offered to buy the troubled lender Countrywide Financial and its exposure to lawsuits, is proposing the creation of a new federal agency that would buy troubled mortgages and replace them with federally guaranteed loans. Senate Banking Committee Chairman Christopher Dodd has endorsed a similar proposal.
–Credit Suisse is urging the Federal Housing Administration to expand a new program that helps borrowers replace subprime mortgages with federally guaranteed fixed-rate mortgages.
–The Office of Thrift Supervision is proposing a program that allows savings and loans to reduce outstanding mortgage loans to reflect homes’ reduced market values, with the possibility of eventually recouping the losses through the issuance of “negative amortization certificates,” according to the explanation by CNNMoney.com. The certificate would give the lender first claim to the lost mortgage amount if the home regains market value at the time it is sold.
