The downturn in the economy put many people in a
financial bind, making it harder to stay current on debts such as credit cards,
cars, and homes.
Add the crash of the real estate market and a dramatic
drop in property values, you add insult to injury for many, escpecially in the
Tampa Bay real estate market where homes values dropped as much as 55% in some
areas.
Some homeowners have desparately tried to hold on to
their good credit rating by paying their mortgage on time and staying in the
home they have, even with the frustration of knowing that the value of their
property may never increase to what is owed.
But now some hope for those having financial
difficulties or facing the inevitable default:
An article from Bloomberg-
Underwater borrowers current with their mortgage
payments may be able to give up their properties and get their debts erased,
according to new guidelines issued by mortgage giants Fannie Mae and Freddie
Mac.
Non-delinquent borrowers who have Fannie and
Freddie-backed loans and can document a hardship, such as an illness, job
change or other situation, can apply for a deed-in-lieu transaction. Eligible
borrowers also must have a 55 percent debt-to-income ratio. Servicers will be
required to confirm that the property has been left in good condition.
Eligible borrowers will have the forgiven debt – the
amount remaining between the property’s value and size of their mortgage –
erased.
“The goal is to make sure people who have suffered a
hardship have the appropriate options to prevent foreclosure,” says Andrew
Wilson, spokesman for Fannie Mae.
Borrowers may still be required to pay some of the
forgiven debt, however, if the borrower has the means to do so.
“Homeowners applying for deed-in-lieu transactions may
be asked to make cash contributions of up to 20 percent of their financial
reserves, excluding retirement accounts,” Bloomberg reports about the
guidelines. “Or, they may be asked to sign a promissory note for future
no-interest repayments. The amount and terms can be negotiated.”
Fannie and Freddie’s new eligibility for deed-in-lieu of
transactions has been met with some criticism, particularly at a time with the
government-sponsored enterprises are still underwater themselves from steep
losses the last few years. The GSE’s have, to date, required $190 billion of
taxpayer money since 2008.
“It’s an extraordinarily generous approach for companies
still in debt to American taxpayers,” Phillip Swagel, a professor at the
University of Maryland’s School of Public Policy, told Bloomberg. “We’re giving
people an incentive to walk away, right when the housing market is starting to
right itself.”
But some argue that past programs tended to penalize
borrowers on the brink of foreclosure who kept making their payments, says
Julia Gordon, director of housing finance and policy at the Center for American
Progress. Mortgage servicers in some cases were even advising borrowers to stop
making their mortgage payment so that they could qualify for more assistance.
“Fannie and Freddie are finally recognizing that some
people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of
families who need to move who can’t do it if they’re going to have debt hanging
over their heads. There’s no winner when someone is forced to default on their
mortgage – not the investor, not the homeowner and certainly not the
neighborhood.”