- Refinancing through FHA with principal reduction for owners who owe more than their house is worth. This part of the program depends on investors who purchased mortgage backed securities accepting a loss. However, the loss might be less than if they had to go to foreclosure.
- Encouraging banks to reduce principal amounts for loans that are underwater. This coincides with an announcement by Bank of America earlier in the week that it would begin forgiving prinicpal on over 45,000 loans.
Read the complete NY Times article here.
Regardless of the politics, what impact might this have on the real estate market? Many people have chosen to walk away from their homes because they believed it would take years for them to get back to a place where they owed less than their house was worth. The option of principal reduction might keep some of these people in their houses. Homeowners who received prinicpal reduction might also be less likely to sell their home as a short sale. If this new program succeeds in shrinking the number of short sales and foreclosures on the market, it would have a positive impact on home values. However, this will only work if banks and investors choose to cooperate on a large enough scale to have a meaningful impact.
Not in favor. They should take away my potential tax credit too. I'm more in favor of this plan: http://www.ritholtz.com/blog/2010/03/more-foreclosures-please/ We need some long term thinking out of Washington.
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