Today on ABC’s The View,
Suze Orman continues to ask “why the banks aren’t simply just lowering the mortgages to the current market value of the houses across the lines.”
I agree, and I am asking the same question. Why are we letting people go through the emotional toll of losing their homes, of having to relocate, to go through the different processes — HAMP, HARP, HAFA, bankrutpcy and foreclosures etc. — and having empty homes that get vandalized and burglarized, resulting in some homes being demolished. In the end, new home buyers will pay for some of those properties at current market values.
On November 30, 2011, DSNews.com reported that “Congress is calling for principal reductions from GSEs.” According to DSNews.com, twenty-one members of Congress sent a letter to Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco urging him to encourage principal reductions on loans backed by Fannie Mae and Freddie Mac.
“We do not urge that the enterprises reduce principal on mortgages as a kindness to homeowners,” the letter stated, but that they will save taxpayers from further potential losses.
There has been no follow-up news on what the letter was able to accomplish.
Back in August of 2010, Hao Li interviewed Suze Orman for the International Business Times. Below is an excerpt of that interview:
IBT: What do you think regulators should do about underwater mortgages?
Suze Orman: This is a very difficult [situation] because it’s very unfair [for] those people who have been paying their mortgages every single month, even if their mortgages are underwater. They have been very responsible and [some] of them get absolutely no help.
I really think we should have reset all mortgages, across the board, to current fair market values. (Emphasis added.) It’s absolutely nuts that some people bought homes and put a lot of money down, but now their mortgages are underwater.
I can give you an example of a $600,000 home in Tampa, Florida, and $120,000 was already put down. The house is now worth about $150,000. There is no help for this person because it’s a rental property. But it was a legitimate purchase for them. But there was no help for them, and there was no choice for them, so they walked away and claimed bankruptcy. How sad is that! All for somebody to buy that house for $150,000, when they could have just let these people stay and reset the mortgage at $150,000. (Emphasis mine.) What’s the difference!?**
IBT: Let’s talk about personal finance scenarios. What should you do if your mortgage is underwater, and you’re basically one broken refrigerator away from not being able to make your mortgage payment?
Suze Orman: In the U.S., the very first thing you should do is not touch a penny from a retirement account. Remember that money, especially in a 401-k plan, is absolutely protected from bankruptcy.
[Having said that], you should continue to pay the mortgage as long as you can, ethically. But if you honest-to-God cannot pay for it, then stop paying for it. Do not put the money on a credit card. Do not take it out of anything else that you have. Do not borrow it from somebody else. Stop paying for it!
At that point, you have the choice of foreclosure, deed in lieu of foreclosure, or a short sale. You should call up the financial institution that holds your mortgage, and if you really cannot afford the payments on this house, you should immediately put it up for a short sale. If a bank will not allow you to do a short sale, then foreclosure or deed in lieu of foreclosure are your options. If your banks still refuses to work with you on any level, then walk away.
Hao Li’s footnote:
**While the idea of resetting all mortgages to fair market value is somewhat radical, it does make sense on some level. The bankruptcy and foreclosure process is economically inefficient and costly for banks. For home-buyers, it undoubtedly takes an emotional and financial toll to be put out of their homes. Therefore, both parties should benefit from avoiding the foreclosure process. For the example Suze Orman mentioned, the home-buyers would essentially start at “zero” with a $150,000 mortgage. In other words, he would not [sic] just have to pay $30,000 more.
To read the whole interview, please go to http://www.ibtimes.com/articles/43826/20100817/suze-orman-on-underwater-mortgages-and-personal-finance.htm
What is your opinion?