The Hill: Dems say Obama administration mulling paydowns to prevent foreclosures

[flpoljunkie]

Dems say Obama administration mulling paydowns to prevent foreclosures
By Mike Lillis
10/26/11 06:43 PM ET

The Obama administration is mulling ways to promote principal paydowns of mortgage loans to help struggling homeowners prevent foreclosures, according to House Democrats who met with a top housing regulator Wednesday.

Edward DeMarco, the acting director of the Federal Housing Finance Agency (FHFA) – the independent agency that regulates Fannie Mae and Freddie Mac – is weighing a proposal to allow bankrupt homeowners to temporarily pay down their principal balance, interest-free, in an effort to reduce negative equity, the Democrats said.

DeMarco, according to the Democrats, said the strategy “has a lot of promise” and “strikes me as being responsible.” He told the 19 Democrats with whom he met that he would weigh the proposal and get back to them within two weeks, the lawmakers said.

A spokesperson for the FHFA declined to comment on Wednesday's meeting.

The Democrats said encouraging principal paydowns would go a long way toward stabilizing the volatile housing market.

"If Mr. DeMarco actually works with us to implement this proposal, it would be an important step to address this crisis," Rep. Elijah Cummings (Md.), senior Democrat on the House Oversight and Government Reform Committee, said in a statement following the meeting.

more...

http://thehill.com/homenews/house/190063-dems-say-administration-is-mulling-principal-paydowns-to-prevent-foreclosures

[dkf]

1. Chapter13 bankruptcy required.

Sponsored by Rep. Zoe Lofgren (D-Calif.), the Democrats' proposal would allow underwater homeowners who file for Chapter 13 bankruptcy to skip interest payments for five years. Instead, all of their monthly mortgage payments would go toward paying down the principal balance. In return, homeowners would agree to settle any pending claims against their mortgage servicers.

"Coordination with the bankruptcy process would make these reductions more likely to succeed than other types of loan modifications, while also limiting the program to those who truly need it," Lofgren and a long list of California Democrats wrote in an Oct. 12 letter to President Obama promoting the idea.

http://thehill.com/homenews/house/190063-dems-say-administration-is-mulling-principal-paydowns-to-prevent-foreclosures?page=2#comments


What Does Chapter 13 Mean?
A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. As part of the reorganization, the debtor must submit and follow through with a plan to repay outstanding creditors within three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors - at least equal to what they would receive under other forms of bankruptcy - and it must, if needed, use 100% of the debtor's income for repayment.

Investopedia explains Chapter 13
Chapter 13 bankruptcy differs from the outright foreclosure of an individual's or business's assets (seen in Chapter 7 bankruptcy) and the expensive and complicated restructuring of debts seen in Chapter 11 bankruptcy. Essentially, Chapter 13 allows a debt-laden person or sole proprietorship that still has significant income to submit an orderly plan to the courts to pay back debts over a few years. Doing so can provide advantages to the debtor not found in other forms of bankruptcy, such as preventing the foreclosure of a residence.

http://www.investopedia.com/terms/c/chapter13.asp#axzz1bzNMijq7


Read more: http://www.investopedia.com/terms/c/chapter13.asp#ixzz1bzNujcyj

[xiamiam]

3. the only thing that will work..should have happened a long time ago..should never have been removed

in 2oo5...it was attached to the stimulus..thrown out immediately..and never mentioned again..until now..gives me hope

[Atypical Liberal]

2. I've been waiting for this shoe to drop.

The fact of the matter is, refinancing isn't going to help much.

Even if I refinanced my home at zero percent interest, my home would still be worth 1/2 what we paid for it when we had it built 4 years ago. Literally half. When we bought the home in our subdivision 4 years ago, it cost $100 a square foot. Today they are building the same homes in our neighborhood for $50/square foot. The only good news is that we bought the home for zero money down so we can walk away without losing anything other than our credit rating.

Many people are one financial crisis from losing their homes. Many others are simply going to make the same business decision a corporation would do and decide to cut their losses and walk away from a bad investment.

What they should have done, instead of bailing out the banks, is used those trillions for principle paydowns for people at the bottom. This would have done a few things:

1) The banks would continue to make profits on their loans and continue to get paid.
2) People would be able to stay in their homes.
3) People would have more disposable income to pump into our consumer-spending driven economy.
4) Our cost of living would decline, making us more competitive globally as we can afford to work for less.

As I have said for years, we are in the midst of a Great Global Equalization. Wages and standards of living are increasing in the developing world, and they are decreasing in the developed world. We can ride out this storm but we will require lower costs of living to do it, and it is happening as the cost of housing has plummeted. The people currently saddled under 30 years of debt under the old costs of living are going to need some help to ride these rapids.

[bvar22]

4. 3 years and several MILLION foreclosures too late.

This SHOULD have been done in early 2009 as a pre-requirement for TARP.
The White House "mulled it over" back then too.
In fact, a much more aggressive Cramdown was "Mulled over".

This PR Release is a direct response to OWS.
Still, it is NICE to hear Mullings of Support for the struggling Working Class come out of the White House.



You will know them by their WORKS,
not by their mullings.

Solidarity99!
--------------------------------------------------------------------------------------------------------------------------------

[flpoljunkie]

5. Agree on all your points--especially the WORKS part.

[flpoljunkie]

6. Must read from Salon today: Make the Banks Pay

THURSDAY, OCT 27, 2011

Make the banks pay
Obama and the AGs still balk at the only solution to the housing-driven recession

BY ADAM LEVITIN

Negative housing equity drives the recession (Credit: iStockphoto/Livingpix)

There is $700 billion in negative equity in the U.S. housing market. That means Americans owe $700 billion more than their homes are worth. Any plan for the housing sector or the U.S. economy, that doesn’t take a serious bite out of negative equity isn’t serious.

Yet un-serious is what we continue to get from elected officials. This week the Obama Administration announced a new plan to help underwater homeowners refinance their mortgages to lower rates. The plan, really an expansion of an existing program, is the latest in a series of programs designed to deal with the moribund housing market. Each has proven a more dismal disappointment than the next.

So too with the latest version of the proposed settlement between the state Attorneys General, led by Iowa’s Tom Miller, and the mortgage servicing industry. Yes, the deal has been sweetened by the addition of some interest rate reductions for underwater homeowners who are current on their payments. But that’s small potatoes.

more...

http://www.salon.com/2011/10/27/make_the_banks_pay/

[Inuca]

7. TARP was passed in 2008 n/t