"reducing the principal balance" on a house?

[Eric J in MN]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNbDcnkjqedg&refer=home

"Some Democrats want a provision that would allow bankruptcy judges to alter the terms of a home mortgage for individuals in bankruptcy, even reducing the principal balance."

Would that be the same as reducing the price of a house?

[flvegan]

1. It would be a reduction in the amount still owed on the house.

It's also a bad idea because (for starters) it's a novation to the mortgage and may alter the lien priority.

[pimpbot]

2. The principle is the amount you still owe towards the original loan amt

Which doesn't include the interest payments. I don't see how lowering the principle is fair. Its kinda like saying "well you borrowed $200k, how about you only pay back $150k?"

[kirby]

5. None of this is fair, but it helps Main Street, not Wall Street...

It says your home was caught up in the housing bubble. You overpaid for it and the price you paid will probably take 70 years return to that value. The Treasury will buy the mortgage from someone in the bailout for say 50 cents on the dollar. The company wrote-off that other 50%, why should you still have to pay the 50%?

This would actually be a really good idea. But I dont think it will happen because people will complain that they worked hard to pay for their home, but someone else who bought during the bubble is getting a bailout.

I imagine this would only be allowed for one home (primary residence) per person so it is not abused by speculators.

[TahitiNut]

12. The key word is "bankruptcy" ... and debt is 'adjusted' all the time in bankruptcy court.

There's absolutely nothing new about relief from debt in bankruptcy court. It's about creditors preferring to recover a portion of the debt instead of NOTHING.

The 'new' thing is a housing market with market values plummeting. This hasn't happened to this degree in over 50 years. So, the banks and courts are faced with the prospect of a foreclosure and an even GREATER loss on the mortgage due to both cost of foreclosure AND the greatly reduced market value of the home.

Rather than foreclose and evict the current homeowner, it makes financial sense to 'qualify' the current homeowner for a renegotiated mortgage at a price equal to its market value and write off the difference as bad debt. Remember, since it's a bankruptcy proceeding, the homeowner won't be able to go to that well again for years.

For folks 'jealous' of the bankrupt homeowner ... go ahead and get yourself in the same situation and discover what you're envying.

[Lance_Boyle]

15. homeowners in foreclosure should never regain an equity stake in that

property. I would be happy to let them pay rent to their former lenders (now landlords) and remain in the building, but why on Earth should they be permitted to profit from getting in over their heads in debt? Bottom line is, if the deadbeats get new mortgage contracts courtesy of Uncle Sam, then so should the non-deadbeats, and the latter should get far more favorable terms.

[TahitiNut]

20. My! Such a 'liberal' attitude!

"Deadbeats"??? How about the GREATEST cause of bankruptcy: Medical Bills???

How about the FACT that the FIRST loser when market prices go down is the homeowner who LOSES his/her downpayment AND equity FIRST?

It's just 'great' to see someone on a purportedly PROGRESSIVE site sneering and demeaning a proposed program that's virtually identical to FDR'S New Deal. Wow!

Why should a homeowner be DISALLOWED the same home equity than any other person is permitted?

Your attitude towards people who've been the EARLIER victims of a broken economy and predatory capitalism is the kind that makes me unconcerned about the whining and outcry when YOU lose your 401k and other 'riches' after having been so hostile to people who've been suffering.

As you wade through the mineshaft seeking YOUR gold while knee-deep in dead canaries, color me unconcerned when YOU find yourself succumbing to the toxic fumes.

The "fuck them - it's about me!" and "they deserve it and I don't" attitudes around here are appalling.

[Lance_Boyle]

21. Go buy some deadbeat a house if you want to

me, I'd prefer not to.

[TahitiNut]

23. The sociopathic nature of your stance is noted.

:eyes:

"Bring back debtor's prisons!!" :puke:

[Raksha]

27. "Deadbeats"???

Oh, you're just brimming over with the milk of human kindness, aren't you? :sarcasm:

I would be happy to let them pay rent to their former lenders (now landlords) and remain in the building, but why on Earth should they be permitted to profit from getting in over their heads in debt?

It never occurred to you that these "deadbeats" may have gotten in over their heads through NO fault of their own...maybe because of a big pile of medical bills? Your mean-spirited attitude is more appropriate to Freeperville than DU.

[TahitiNut]

28. Amen.

:noddinghead:

[Lance_Boyle]

29. deadbeats, yes

Just the same as the "deadbeat dad" who fails to honor his commitment to pay child support - deadbeat borrowers fail to honor their commitment to pay the monthly mortgage bill. Are you willing to call one a deadbeat but not the other?

[librechik]

3. yes, thus reducing the amt of the monthly payments, theoretically

but the Real Estate Biggies want to hold on to the inflated value of those loans, (and many consumers are on their side because they fear neighborhood values go down if those go down)--so it's going to be a battle to get that provision.

[Raksha]

26. That doesn't make any sense.

but the Real Estate Biggies want to hold on to the inflated value of those loans, (and many consumers are on their side because they fear neighborhood values go down if those go down)--so it's going to be a battle to get that provision.

Neighborhood values go down when there are five or more vacant properties per block, with dead lawns and "bank owned" signs out front. That's pretty much what my neighborhood in the formerly "upscale" part of San Bernardino looks like. Of course when you're talking about San Bernardino, "upscale" is a VERY relative term!

[madrchsod]

4. some democrats are idiots

there`s no way in hell that a bankruptcy judge would want to rule on this. way beyond the scope of what a judge could or should do.

this could work under a chapter 13 but not a chapter 7

[sandnsea]

9. Ever seen corporate bankruptcies?

Judges rule on this sort of thing all the time.

[melm00se]

11. in Ch13 bankruptcies

judges can, and do, cram down balances in things like car loans.

There was a USSC decision back in the late 80's or early 90's that said the BK judges couldn't do this.

In addition, real property is, in most cases, an appreciating asset, unlike cars which are depreciating assets. So you could have a situation like this:

House bought for $300K
Mortgaged for $280K
Market drops 25%: $225K house value
Bankruptcy filed
Judge crams down the mortgages to $225k
time passes - the local real estate market appreciates at 3% per year (not a huge level of appreciation) and within 10 years (and the mortgage isn't even paid off) and the house is right back up to it's original value. The home owner gets a free $65K in equity.

see any room for abuse?

[angstlessk]

22. honey, if someone files bankruptcy with the 'hope' the judge will

lower the principal on their residence, AND in 10 years time 'hope' the value in the home market increases so they could make a 'swift' 65 grand in equity, you must be bonkers!!

HELL THEY SHOULD JUST SPEND 2 YEARS IN TRAINING AND BECOME AN INVESTMENT BANKER AND SCREW EVERYONE!!!

[TahitiNut]

25. Do you notice that they lost their $20K downpayment?

Golly! Such a deal! I just can't think of a better way to spend $20K than lose it then hope for a 3% appreciation in an asset for 10 years. Nevermind the FACT that they'd have made 120 mortgage payments of somewhere around $1,000-$1,200 each over that entire time period!!

Wow! :wow:

[sandnsea]

6. As the housing bubble bursts

the value of houses goes down. People can't get refinanced on what they owe because the appraisal won't value it at that price. They either have to get the mortgage rate reduced, it is only paper after all, or they'll walk away. There is already a provision in the federal HOPE Act to allow for the reduction of mortgages up to 15%.

[madrchsod]

10. the new hud program goes into effect oct 1

government backed fixed rate for 30 yrs to qualified home owners

[sandnsea]

13. The HOPE Program, revised

which allows for a write-down of the mortgage.

It also isn't as easy to qualify for as it sounds.

Your reset rate has to be over 31% of your income. So people who have a reset mortgage - and increased health care debt, increased credit card rates, and decreased income - still might not qualify.

And it doesn't require banks to do anything. It's only more insurance, like Republicans said would fix the financial liquidity.

[sinkingfeeling]

7. Same as reducing the amount of the mortgage.

[Eric J in MN]

8. The monthly payment on a mortgage could be reduced..

...without the total amount owed changing.

[sandnsea]

14. How? n/t

[Eric J in MN]

16. Change from 30 to 40 years. NT

NT

[sandnsea]

18. Which reduces the short term income

of the banks, which is part of the problem.

[Raineyb]

17. By extending the terms

But then the bank makes even more money because there's even more interest to collect. Not exactly advantageous to the homeowner.

Regards

[sandnsea]

19. In the long run,

but the long run isn't the problem. The short term balance sheet is the problem, and your solution makes that worse.

[Raineyb]

24. I didn't say it was a solution

Nor did I imply it was desirable. I'm merely answering the question.

Regards