|Quote, originally posted by Jimmy Bionic »|
|I would suspect this is some sort of infomercial...|
I'm sure the housing market is a lot different in Connecticut than it is in places like California and Arizona. My sister is a realtor in Arizona and one of her clients had a baby at the same time that one of the parents had their hours cut at work due to the slowdown. They still counted themselves lucky to even have work, but between the two things at once, they fell behind on their house payments. They paid $200k or something in 2004 and houses were now selling for half that in their neighborhood. They kept making partial payments, knowing that makes it a lot harder for the lender to foreclose in the current market conditions than if you stop paying entirely.
Eventually they hired my sister to work out a deal with the lender to put the home up for sale as a short sale, which is where you just try to get market value and the lender agrees to let them out of the mortgage regardless of the loss. The house went up for sale for $140k initially, but after a couple homes in the neighborhood had sub-100k transactions she was able to get permission to list it at $90k.
About a week after the lender agreed to letting it sell at $90k they began repeatedly contacting the family offering to let them refinance the $200k mortgage as some lower amount. I'm not sure how much, but I'm guessing more than $90k, so in theory they may have still ended up with a $120k mortgage with homes still selling for a lot less than that. Still, I know there was an offer made to them to just plain forget about some huge portion of the principle and let the lender write it off and they could keep the house. A couple weeks later they got an offer on the home for the full $90k and took it. As far as I know, the deal went through, so they were able to complete the short sale and go find somewhere else to live.
I'm not sure how common this is, but if Obama's $150 billion mortgage rescue plan is structured to simply pay off a portion of the principle of home loans and refinance the new, lower principle then at least the government is making a limited time intervention, then stepping back and letting the market forces do as they will.