Should Banks Reduce the Principal on Homeowners who are Upside Down on Their Mortgages

Chart of Price Fluctuations in Detroit AreaRecently there was an article in the Detroit Free Press on the challenges facing people who are upside down or under-water in their mortgages.

According to the article, “In Michigan — home prices have dropped more than 35% from their 2005 peak — home values are expected to fall another 22% statewide over the next five years.

The underwater mortgage problem particularly in Michigan, has been hard because of the nearly ONE million loss of manufacturing jobs in the past ten years.

Some experts advocate for principal reductions.

But that would be seen as “a big giveaway,” said Julia Gordon, senior policy counsel for the nonprofit Center for Responsible Lending in Washington, D.C. “If there is anything the American public dislikes more than bailing out the bank, it’s (bailing out) their neighbor,” Gordon said.

Still, she said, the problem of underwater mortgages — where the homeowner owes a lender more than the house is worth — should concern everyone. “If your neighbor goes into foreclosure, it brings your home value down,” she said.

What do you think the solution is?

Is it fair that the banks, GM, investment firms were too big to fail? Yet many homeowners through no fault of their own are allowed to loose their most important possession, their home?

According to First American Core Logic it would cost taxpayers close to 108 Billion Dollars to help the Americans with upside down or under-water mortgages.

Would you advocate helping your neighbors or the banks?

The chart is from the Detroit Free Press, and the data is gathered from Real Estate One Brokerage in Michigan.

Comments

comments

One thought on “Should Banks Reduce the Principal on Homeowners who are Upside Down on Their Mortgages

  1. Neighbors.

    Property values have dropped in my town by 65%. If the banks were smarter, they would have just given it away. Instead, they pay outrageous fees to foreclose, cash-for-keys, etc. for homes that were abandoned and then demolished by squatters and vandals, then sold for much less.

Thoughts?