Last week it was discovered that the means by which various big banks are dealing with the Option ARM cliff is by enforcing outright mortgage debt forgiveness, in some cases as large as 50% of the total principal.
Which is why it should come as no surprise that the administration, in
dealing with the lack of an unemployment cliff, has decided to extend foreclosure-free living for unemployed homeowners from a few months to a year. From USA Today: "The
administration today will announce that two programs providing
unemployed homeowners a few months' forbearance on their mortgages will
be extended to 12 months, said three administration officials speaking
anonymously because the program has not been announced. Thousands of
homeowners could benefit from the additional time, although not all
jobless homeowners will be eligible. The action is being taken as part
of the administration's effort to help prevent foreclosures while
unemployment remains above 9% and the economy struggles to rebound." What would be great if in addition to such openly
socialist policies the administration would enforce the implementation
of sinking funds for said unemployed workers, who instead of taking
unemployment benefits from the government and converting it into less
than edible iPads, would actually set aside money for that eventual
mortgage payment. Of course that will never happen: after all why
redirect freshly issued fiat from being recycled into the economy and do the responsible thing when nobody in America expects to pay their mortgage
payments ever again. And some wonder why retail sales in June came as
blistering as they did. Simple: when the US consumer no longer has to
spend any money on the biggest traditional use of capital, housing, the
alternative is everything else. And for those attempting to figure out just how this
is deflationary (for everything but housing of course, but that's one
deflation that will only hit the pocket of Uncle Sam), we would kindly request an explanation as well when someone has an answer.
The Federal Housing Administration began offering four months of mortgage relief to unemployed homeowners nearly a decade ago. Banks and mortgage brokers participating in the program must comply with the new standard. The Home Affordable Modification Program has been offering three months of relief to the unemployed since last year. Those who service mortgages under the program are expected to follow its voluntary guidelines.
To qualify for mortgage forbearance, unemployed people must be looking for work. Those who can afford to pay a portion of their loans must do so.
Skeptics about this program should shut up: it is a "win-win" for everyone. Because in Obama-style economics zero sum is no longer relevant.
The revised programs are intended to be a win-win for borrowers and banks, which can avoid having more homes go into foreclosure by giving borrowers more time to pay.