Senate deal struck on mortgage aid

CNN Money ^ | 5-19-2008 | Jeanne Sahadi

[lainie]

NEW YORK (CNNMoney.com) -- Senate Banking Committee leaders said Monday that they have come to a deal on a housing bill that would prevent foreclosures, create affordable housing and revamp oversight of two of the mortgage market's biggest players: Fannie Mae and Freddie Mac.

A major part of the legislation would allow the Federal Housing Administration to insure $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.

The deal was struck between the top Democrat and Republican on the Banking Committee: Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala.

"This legislation is good news for both the markets and homeowners," Dodd said in a statement. "The bill addresses the root of our current economic problems - the foreclosure crisis - by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes."

[word_warrior_bob]

I don’t know how this is written but I could see a scenario where someone who’s home has gone down considerably in value would be motivated to stop paying their mortgage. It can take 18 months to 3 years before they actually take your house.

Joe Homeowners house has dropped 20-25% in value, he stops paying, bank starts foreclosure proceedings after 3 months, Joe Homeowner calls bank and negotiates a new sales price for 30% less. Joe Homeowner makes tens of thousands of dollars, plus reduces his mortgage, the only thing at risk is credit rating, which can be recovered. When house goes back up, that is now all equity to Mr. Homeowner.