red states rule
06-29-2009, 06:23 AM
Yet another bailout for homeowners with taxpayer money.
Is it time for underwater homeowners to be given a get-out-of-debt-free card?
Some housing experts believe there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are at risk of foreclosure.
snip
One proposal for a debt-forgiveness program was floated this month by the Milken Institute in Santa Monica. The plan, authored by institute President Michael Klowden and regional-economics director Ross DeVol, would refinance existing mortgages of underwater homeowners with new loans from the government.
Klowden and DeVol call it the "homeowner principal forgiveness vesting plan." Here's how it would work:
Say an owner's mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.
The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.
"This gives homeowners the incentive of returning to a positive net-equity position before their hair turns grey -- maybe even in time to pay for their children's college education," Klowden and DeVol wrote in a summary.
They estimate that the cost to Treasury (and thus to taxpayers) of saving 1.5 million homes from foreclosure or abandonment with this plan would be between $75 billion and $100 billion. That assumes the government wouldn't jeopardize the original lenders' balance sheets by forcing them to share in the cost via haircuts on their loans.
http://www.latimes.com/business/la-fi-petruno27-2009jun27,0,2308676.column
Is it time for underwater homeowners to be given a get-out-of-debt-free card?
Some housing experts believe there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are at risk of foreclosure.
snip
One proposal for a debt-forgiveness program was floated this month by the Milken Institute in Santa Monica. The plan, authored by institute President Michael Klowden and regional-economics director Ross DeVol, would refinance existing mortgages of underwater homeowners with new loans from the government.
Klowden and DeVol call it the "homeowner principal forgiveness vesting plan." Here's how it would work:
Say an owner's mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.
The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.
"This gives homeowners the incentive of returning to a positive net-equity position before their hair turns grey -- maybe even in time to pay for their children's college education," Klowden and DeVol wrote in a summary.
They estimate that the cost to Treasury (and thus to taxpayers) of saving 1.5 million homes from foreclosure or abandonment with this plan would be between $75 billion and $100 billion. That assumes the government wouldn't jeopardize the original lenders' balance sheets by forcing them to share in the cost via haircuts on their loans.
http://www.latimes.com/business/la-fi-petruno27-2009jun27,0,2308676.column