Bailouts are getting ever more personal to taxpayers — and now you can use them to your personal advantage, at least in the States.
Specifically, the FDIC-sponsored Streamlined Modification Program, announced last week and aimed at restructuring loans for borrowers on the verge of foreclosure.
Kathleen Pender at the San Francisco Chronicle shows you how:
To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home’s value. It’s fine if you owe more than it’s worth.
Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.
If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment – including property taxes, insurance and association dues – to 38 percent of your gross income.
And it could even apply to out-of-work bankers. Witness:
The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage.
Of course, not paying your mortgage for 90 days will hurt your credit rating — but less than foreclosure or full-out personal bankruptcy. It would put you on, say, the level of a Bear Stearns as opposed to a Lehman Brothers.
For that reason, in the same article, Pender has a quote telling us we’d be moronic not to restructure:
Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.
‘This is a once-in-a-lifetime opportunity,’ Schiff says. ‘People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.’
A free vacation on the US government and a restructured home loan? If FT Alphaville owned a house in the States we’d be in.
Of course, in the UK, we may not be far off from something similar. The government could well announce further measures to help homeowners in its pre-budget report on Monday on top of the £1.2b (Investec estimate) spent on housing support since the March 2008 budget. UK banks are already seeing an increase in the number of so-called “voluntary repossessions.”
But what about the moral ramifications, you might say? Felix Salmon puts it best:
…if you can get your principal reduced by hundreds of thousands of dollars just by quitting your job for a few months, that’s a deal which makes a certain amount of sense. It’s a pretty perverse incentive for the government to give you, but that’s the hand that millions of Americans are now being dealt. And it’s entirely the fault of the people who dreamed this scheme up.
Remember that it’s not a crime to default on your mortgage. The banks are perfectly happy scraping around in the fine print of credit-card agreements to screw their customers; the customers should be perfectly happy similarly to optimize their own situation with respect to the banks…
Related links
Are you an idiot to keep paying your mortgage? – San Francisco Chronicle
The economics and ethics of mortgage default – Felix Salmon
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