Toward the end of last year, when it became obvious that millions of foreclosures would be the result of the subprime mortgage crash, the Bush Administration suggested that mortgage lenders freeze interest rates for five years. Now, with foreclosures threatening on even higher-quality loans, a new policy is in effect. The New York Times reports on the details of this latest mortgage loan program, Project Lifeline:

Under Project Lifeline, banks are promising to delay foreclosure proceedings for 30 days for delinquent borrowers with both subprime and higher-quality loans. During the pause, the banks would presumably try to modify the loans to make them affordable over the long run.

One would hope that this would allow time for mortgage lenders and borrowers to work out alternatives to foreclosure. And while some homeowners will receive help from this measure, the combined benefit of the efforts to forestall foreclosures are unlikely to actually make a sizable dent in the problem.

Another thing to consider is that these cosmetic fixes do not address the underlying problems with the mortgage industry. Mortgage lenders have been too eager to give home loans to anyone, and borrowers have been too anxious to get more house than they may be able to afford. Stricter attention needs to be paid to the ability of the borrower to pay after a mortgage reset, and a greater emphasis should be placed on qualifying for higher-quality loans with reasonable fixed rates.

Tags: mortgage loan news, Project Lifeline, mortgage loan, subprime mortgage,
mortgage industry, mortgage interest rates, mortgage lenders

When one thinks of financial planning moves, foreclosure isn’t normally at the top of the list. Much like 20 years ago no one would have put bankruptcy on a list of financial planning tools. However, bankruptcy has been considered a viable financial planning option in some circles for more than a decade now, even with the bankruptcy rules passed a few years ago. Now it looks as though foreclosure may be heading into the realm of financial planning as well.

Inman News offers insight into how foreclosure is increasing as a mortgage trend — and not just among the financially strapped:

Not only the social stigma, but also the financial pain of foreclosure has diminished. Landlords reportedly have put out the welcome mat for former homeowners despite their impaired credit. Everyone seems to acknowledge that even a foreclosure will drop off a credit report in a matter of a few years, and that then these walk-away homeowners will be ready and able to get new mortgages and purchase new homes. Expect them to do so just in time for the next upturn in the housing cycle.

In non-recourse states, lenders can’t pursue former homeowners for unpaid mortgage debt after foreclosure. And now that much of this forgiven debt can be excluded from taxable income, those who walk-away from a mortgage often can avoid the federal income tax liability as well. Not even the all-mighty Internal Revenue Service can touch these folks.

This probably isn’t going to do much for “economic stimulus.” If a home’s value falls, and the mortgage payments no longer seem worth the hassle, foreclosure is becoming the option of choice. It frees up the money used on a mortgage payment, and, much like cutting your losses from a poor investment choice, it cuts you free. Yes, it will show up on your credit score, but, like bankruptcy, it will eventually disappear.

Tags: financial planning, smart financial planning, home mortgage loan, mortgage foreclosure,
mortgage blog, mortgage trend, bankruptcy

President Bush is expected to sign the economic stimulus package passed by Congress at the end of last week. The portion of the economic stimulus package that is getting the most interest is that tax rebate for many Americans. However, there are other provisions in the economic stimulus package:

• Mortgage loans can be bought by Fannie Mae and Freddie Mac in amounts that exceed $700,000 in certain high-priced markets.
• Business tax incentives.
• Additional measures for military veterans.
• Help for the elderly.

The Senate version of the economic stimulus package added additional tax incentives for other groups of people, and the House met with the Senate in order to reconcile the differences and get a version passed.

Whether or not this economic stimulus package will do enough is a current subject of debate. While there are changes to mortgage financing in the bill, problems are likely to continue plaguing the mortgage industry, the International Herald Tribune reports:

Many economists believe the government will have to do more to address the mortgage crisis. Defaults are soaring as millions of borrowers with spotty credit histories who got loans find themselves unable to make monthly payments once the mortgages reset to higher interest rates.

And it is important to note that this is a “quick fix” for the economy, doing nothing to address the underlying problems of the economy. Instead, the measure encourages more debt, placing burdens on an already strained national treasury. Plus, the amount given is unlikely to be enough to help mitigage pressure on American household expenses.

Additionally, though polls show that most Americans plan to use the tax rebate to pay down debt (especially credit cards), practical experience shows that it usually gets spent on consumer goods.

While this might help shorten a US recession, it is not the best option in the long term, since we will likely be in a similar place in a few years (remember the tax rebate offered by the Bush Administration and Congress a few years ago?). And it won’t help most people on an individual personal finance basis.

Tags: economic stimulus, Congress economic stimulus package, home mortgage loan, mortgage blog,
Bush Administration, tax rebate, personal finance