Struggling to pay your mortgage? Late on your payments? In danger of being foreclosed? The federal government has cooked up a sweet deal that could result in a loan you don't have to repay.
The $1 Billion Emergency Homeowners Loan Program is the latest attempt by the Department of Housing and Urban Development to slow down the glut of foreclosures on the market. The program offers interest-free loans of up to $50,000 for people who have lost their jobs. The best part is the loans don't actually need to be repaid, in some cases.
Here's how it works, according to SmartMoney:
"Payments go directly to the lender for a portion of the borrower's monthly mortgage, including missed payments or past due charges. And when the assistance period -- which runs for up to two years -- ends, 20% of the loan is forgiven with each passing year. In other words, for qualified borrowers who stay in their home for at least five years after the assistance period and who don't fall behind on their mortgage again, this money doesn't have to be paid back."
That's a tough pill to swallow for homeowners who are paying their mortgages on time. Unfortunately, there aren't an easy answers to the problem, Gerri Detweiler of credit.com tells The Daily Ticker's Aaron Task.
"The truth is with this housing market, no matter what solution we're going to come up with there's going to be some unfairness involved," she says. "If you're a homeowner in a neighborhood where there are foreclosures -- every single foreclosure drops your home value" by an average of 11%.
The other problem, Detweiler points to is, "the program is only aimed at 30,000 homeowners" out of the 4 to 4.5 million Americans currently underwater or late on their payments.
Even if the program did cover more people, there remains a pricing imbalance in the housing market that can't be fixed. "There's a lot of underlying mortgages that are still unaffordable and there are a lot of second mortgages that are interest only, that have to eventually be amortized and are really no longer backed up by collateral in the home," Detweiler says.
The only real solution is to allow homeowners to modify their mortgages in bankruptcy, she suggests. Banks have been reluctant to allow this as it would mean a principle write-down in the loans and a loss of revenue. But, I'd be willing to bet most Americans would prefer that to sponsoring what amounts to a $50,000 gift from Uncle Sam.
- second mortgages