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Fewer than 5,000 homeowners have taken advantage of an Obama administration program that aids “underwater” homeowners, reflecting banks’ resistance to offer such principal write-downs.
The administration in March 2010 unveiled a multi-part effort designed to encourage banks to slash principal balances for borrowers whose homes have plunged in value due to the housing bust. It attracted lots of attention at the time. But the program has failed to gain traction.
About 10.9 million U.S. households, or nearly 23% of those with a mortgage, are “underwater” – meaning they owe more on their properties than their homes are worth, according to CoreLogic Inc. Treasury Department statistics released recently show that only 4,911 homeowners are participating in the principal-reduction program, which aids borrowers who owe at least 15% more than their properties are worth.
But those homeowners who managed to get their loan balances reduced are seeing substantial principal reductions: The median write-down was about $69,500, or a reduction of more than 32%.
This program and others are part of Treasury’s Home Affordable Modification Program, or HAMP, which was announced in early 2009, but has fallen far short of initial expectations. As of May, it has helped about 633,500 U.S. homeowners avoid losing their homes through permanent loan modifications, compared with an initial goal of helping 3 million to 4 million borrowers.
Banks have largely resisted slicing homeowners’ loan balances. Only 2.8% of loan modifications – including government and private-sector programs – made in the first quarter involved a reduction in the total principal amount owed, according to a report by bank regulators.
Should you keep paying your mortgage on a home that’s dwindling in value? No way, say an increasing number of underwater homeowners who are voluntarily choosing to “walk away” from their home loans, a practice known as “strategic default.”
Jon Maddux, CEO of YouWalkAway.com, reports 10% more clients this year to his company, which advises people how best to handle the walk away process.
Charles Gallagher, a real estate attorney in St. Petersburg, Fla., has also seen an uptick.
And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that’s up from 15% last year.
In an early 2010 report, Morgan Stanley researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks.
“People are more educated about the process,” said Maddux of YouWalkAway. “They’re making more calculated, less emotional, decisions and are less fearful and less concerned about the stigma.”
University of Arizona law professor Brent White thinks the past few years of banking scandals have reinforced the view that it’s not unethical to walk away.
“There’s a sense that the banks don’t follow the ‘rules,’ but somehow the little guy is supposed to — more and more people are saying ‘enough is enough’ and walking away,” said White, who is also the author of “Underwater Home: What Should You Do If You Owe More on Your Home than It’s Worth?”
Some homeowners, however, can’t get past the stigma.
What about you? How do you feel about people who are able to pay, but walking away? The comment link below is where you click to comment on this. We’d love to hear from you.
Should we be doing more to help our troops fighting for freedom? Sure seems illegal to have this occur for those serving. Some people take a “strategic default” while others lose their homes defending the rights of the “defaulters.”…
Have questions or concerns about this growing problem of military mortgages underwater and being foreclosed upon while serving? Let us hear your comments or feedback about this growing issue.