Fannie
Mae and Freddie Mac decided today (April 14th) that they would allow
U.S. borrowers to cut their loan balances for borrowers who owe more than their
actual home is worth. It is estimated that approximately 33,000 people will be
eligible for this. In order to qualify, you must have a principle balance left
on your loan of more than $250,000 and must be at least 90 days delinquent on
your mortgage payment. The goal of this program is to give an opportunity to
delinquent homeowners who are significantly behind in payments to avoid
foreclosure and lose their homes.
While
I think that this is certainly a program that may help many avoid foreclosures,
I am not sure if it is necessarily fair. Although I certainly understand the
fact that it can be extremely hard to pay off debt especially as interest
accumulates, in a simplistic view it is essentially that seems people are being
rewarded for not meeting their obligation of their debt. Although I understand
why this program is being introduced, it seems like this move would be unfair
to many that have kept true to their obligation. It seems like it would be more
fair if this program was to cut down on the amount of interest these delinquent
homeowners owed as that can accumulate quickly, but it is actually the principle
that is being cut down.
What is your opinion on this program? Is it fair?
In December, it was reported that negative equity in the United States had dropped from 14.4 to 13.4 percent, substantially different from the rate of 38.85 percent from 2007 to 2009. Though 13.4 percent is significant, is it really significant enough to where those who potentially bought something they clearly could not afford? I agree with you on this Chris, though to make the most educated choice I admit, I would have to know a lot more about the housing market and where it has returned back to since the housing crisis.
ReplyDeleteI think that, like most decisions, there are definitely pros and cons to this kind of decision. On one hand, I believe that the program is really great for the people that were effected by the great recession. For some, they might've gotten swept up into the draw of the subprime mortgage area or took part in other extremely risky and complex transactions without realizing the consequences. On the other hand, there is the question of whether or not the program is actually fair. Like we discussed in class, there is always the dilemma of balancing moral hazard-- if these people actually knew what they were getting themselves into and didn't really think about the consequences that got them to this point of almost foreclosing their homes, they might see the fact that fanni mae and freddie mac are "rewarding" them for this behavior. In the future, they might remember the few consequences that their actions had and engage in even riskier behavior. Furthermore, I do agree with your point about the difference between cutting the principle versus the interest payments, and I think that is definitely something to look into.
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