The whirlwind of mortgage debt continues to spin above the heads of many homeowners and the federal government needs to aggressively step in. A recent New York Times lead editorial highlights just that. As the clouds begin to disappear the link between the housing market and the economy becomes clear; the economy cannot get better until the housing crisis is resolved.
With the mass majority of homeowners owing more than what their properties are worth drastic measures need to be taken. The Times editorial focuses on the need for the federal government and banks to work with homeowners to reduce principal balances and make refinancing easier. Modifications which simply reduce interest rates and monthly payments are not enough.
According to the Times currently 14.6 million homeowners are underwater. Approximately 3.5 million homes are in foreclosure and almost 6 million borrowers have already lost their homes during the foreclosure storm.
A majority of the “help for homeowners” programs focus on people in default, but where is the help for the responsible homeowner trying to stay afloat? As the economy begins to sputter again; many homeowners are experiencing a reduction of income. Yes, modifications are helpful by lowering interest rates, but lowering principal is the real solution. Reducing principal will bring about a positive chain reaction by reducing mortgage payments, increasing consumer spending and confidence, restoring the economy, and in turn creating jobs thereby reducing unemployment. This is the ray of sunlight to underwater homeowners.
In Florida, as if the roaring thunder was not enough, lightening continues to strike as foreclosure filings resume with the reinstatement of the foreclosure actions which were temporary suspended during the investigation of the foreclosure mills. As the Times editorial notes, the federal government needs to lead the way in providing refinancing and principal reductions. With the vast amount of foreclosed and vacant homes available, house values will likely continue to drop. Without providing principal reductions homeowners are just walking away, so in the long run, it is the banks and the government that really lose.
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