Mortgage crisis

Home owners in trouble have the FED on their side

Posted by Kristal Kraft, Denver Realtor on March 5th, 2008

There isn’t a day that goes by where we don’t hear or read a story about a home owner having trouble making house payments. The Foreclosure Crisis continues with more and more communities trying to figure out what to do to help. The Federal Government is taking a strong look at various solutions.

Federal Reserve Chairman Ben Bernanke said this week.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure. "

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done."

Interesting how the Big Guy has a different twist to solve the problem. I’ve only heard of lenders reducing their interest rates for home owners in trouble. That just means the mortgage payment is made more affordable, especially with the adjustable rate loans that topped out at unmanagable highs.

By reducing the loan amount to give the mortgage holder instant equity means home owners who must sell might be able to use this adjustment to get out of their home without having to lose it to the bank.

Bernanke’s reasoning for giving the home owner equity was to take stress off the homeowner and give him financial incentive to stay in the home.

I’m not sure I agree with Mr. Bernanke on this. Given a choice between taking a lower interest rate or a reduction of loan amount, I would have to make my decision based on my future plans.

If my intention was to stay in the house, the lower interest rate would be more attractive in the long run.

If my life situation was such I had to move, my preference would obviously be the principal reduction.

So the solution aka Bernanke is not "one size fits all." Of course nothing in life is…

Bottom line, the market may stink, but the strategy is still the same. If you live in an area of declining values and don’t have to move.

DON’T MOVE. DON’T SELL. STAY PUT.

On the other hand if you are thinking about downsizing, moving up or investing, now is the time to do it. What you lose on your current home you will gain equally if not more by acting now.

Really.

Facing Foreclosure

There is Life After Foreclosure