What it Means to the Home Mortgage “Crisis”
Many of us watched with serious confusion the strange financial market machinations that led to the Fed bailout of investment bank Bear-Stearns, taxpayers taking on bad debt paper held by speculators rather than any actual member of the central banking community. JP Morgan bought B-S for mere pennies on the dollar, ending up buying for just a 5th of what B-S’s Madison Avenue headquarters building is worth – the rich folks have taken their hit. What matters now is how much of a hit the average cash-strapped citizen will have to take.
Government bailouts of junk paper speculators is outrageous, and does not a thing to help homeowners whose mortgages far outstrip the current reduced value of their homes – while the price of every necessity is going through the roof. Yet at the same time Fed chair Ben Bernanke pledged to “do all that is possible” to help struggling homeowners. There actually may be hope on the horizon, though nobody should bank on Fed “pledges.”
What should a homeowner behind in mortgage payments (and unable to catch up) hold out for? With the cost of everything going up quickly, there isn’t much incentive to hang on to an overpriced mortgage or the increasing fees for being hopelessly behind. If the homeowner still has a job, here are the things to insist if the mortgage holder is willing to negotiate…
1. Reduced principal. Tell the holder you don’t want a property that’s worth tens of thousands less than what you bought it for in an inflated market.
2. Reduced interest. Tell the holder you don’t care to pay 13-20% interest over 20-30 years and certainly aren’t looking to be able to afford a balloon payment in this economy. If they won’t re-set to a flat rate of 8% or less, tell ‘em you’ll send a postcard from wherever you end up.
3. Make sure they re-set the whole thing so you start fresh in the new mortgage. Don’t agree to start over already behind, and don’t accept imposition of ‘points’ on the renegotiation.
In some states courts have determined that the debt has been bundled and resold by speculators so many times that no one actually holds the mortgage paper. This means homeowners cannot be foreclosed on if no one can prove they hold the debt. If this is true in your situation, you just might come out ahead! At least, until the markets figure out how to re-do everything, and in your favor if you insist. They can’t re-do anything you won’t go along with.
And while you’re negotiating, remember that even with a low fixed-rate mortgage you’re still paying 3 times the actual price of the property over the life of the loan. That’s the way it works, and this is not going to change. It’s a trade-off for the real property asset – but useful only so long as it’s an actual asset and not a lead weight on your ability to get by in the world. If the feds can bail out the wealthy speculators, they can bail out strapped homeowners. If they won’t do that, there’s nothing wrong with walking away.
Being a “bad credit risk” in an economy where no credit is being extended anyway isn’t much of a problem. By the time the economy climbs out, just about everything will have to be re-set. If you take to heart the many resources available to conduct your life without going into debt (brand new used!), you’ll get by better than many others.
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