Easy Debt Relief!

There is some hope still for homeowners wondering if there will be more foreclosure statistics in 2010. The federal government is working on a plan that will hopefully make it easier for people to qualify for the Making Home Affordable program. The government is also trying to find a way to convince banks to write off some or all of the difference between an underwater home’s mortgage balance and its market value.

The write-off discussions are actually addressing the more complex issues. Banks are unwilling to write off portions of mortgage balances because large write-offs would have to be absorbed financially. The government cannot force the banks to accept these write-offs either unless the government is willing to bear a good portion of the financial burden. In addition, many homes have second mortgages and first mortgage lenders are unwilling to assume 100 percent of the cost of write-offs.

On the other hand, the Making Home Affordable program still holds out some hope for families who cannot afford their mortgage payments. The program has not worked well so far. One of the main reasons is the massive amount of paperwork that is required and the tax records needed to prove income. In addition, big banks have not been good at converting trial modifications into permanent modifications.

And the mortgage companies have not been particularly helpful. Lending institutions are understandably reluctant to modify loans and accept less money each month then was agreed upon. The mortgage industry has also gone through a massive upheaval during the recession with mortgages being bought and sold numerous times. As a result, one of the main consumer complaints is that mortgage companies frequently lose paperwork and put the burden on the consumer to resubmit the same documentation over and over again.

The Obama administration wants to help people stay in their homes, but even that goal is not without its critics. Some mortgage companies and banks believe the Making Home Affordable Program often keeps people in homes they simply cannot afford. In their opinion, lowering the mortgage payment will not prevent many of the homeowners behind on their payments from eventually filing foreclosure. What is ironic about this situation is that it is the mortgage companies that approved mortgages for people who should not have qualified in the first place.

The goal of the federal government is to help homeowners who have seen their household income drop due to unemployment or pay cuts. The Treasury department has not provided a whole lot of details yet but has stated its goal is to “expedite conversion of current trial modifications and provide guidance on documentation.”

A complication for the government and banks is the fact that if the banks refuse to write off some of the loan balances on underwater homes there is a good chance consumers will be better off just walking away from their homes rather than continue to make payments. Right now the government rewards mortgage companies financially for lowering mortgage payments but has not done much to address the problem of underwater homes.

The message to consumers, who can afford their homes in the long run but need temporary help until the job market returns to normal, is to work closely with their lenders and stay informed as to available mortgage assistance programs. For those consumers who accepted original mortgages they simply could not afford, it might be time to take a long hard look as to whether any government program will be beneficial over the long term.

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