Are you a ‘responsible homeowner’? Housing and the State of the Union.

By Alanna McCargo

In the President’s State of the Union address, there were a few mentions of one of our nation’s most critical economic issues –housing. Thankfully, no grandiose plans or promises were made to write down everyone’s mortgages or save borrowers who haven’t paid their mortgage in years. Instead, the President actually touched on a key issue that is at the root of the housing debacle and a fundamental issue that will keep this country from a full housing market recovery – home price declines. Its a real issue that many Americans across the socio-economic spectrum can actually relate to. Whether your home is worth $100,000 or $1 Million dollars, being ‘upside down’, and owing more than the home is worth, is a reality for more people than not paying the mortgage at all.

Far more homes are ‘underwater’ in negative equity positions than those that are seriously delinquent. In November 2011, roughly 14.6 million borrowers were expected to be underwater, according to Zillow. The President was wise to shed some light on home price depreciation, its continuing trend downward in many parts of the country, and the need to help “responsible” homeowners out of the ditch. Responsible homeowners, he describes, are those who are paying the mortgage every month on a house that is worth a lot less than what they originally paid for it. Those families who are continuing to stick to their debt obligations despite the plummeting value of their property. He acknowledged that the refinanceprogram unveiled back in October of last year only helps a small portion of those who need refinance assistance, because that program – the Home Affordable Refinance Program (HARP) – only helps borrowers whose loans are owned by Freddie Mac and Fannie Mae. He pledged to do more to help the vast majority who are in this situation, and put forth a bill to get more people relief from this terrible burden.

What about the 13 Million others who need help?

The President was able to make the HARP changes and get them implemented last year because it didn’t require an act of Congress. It was a move his Treasury department could do under pre-existing policy and authority. In order to accomplish what was suggested in the State of the Union address -expand the option to refinance to all borrowers who have an underwater mortgage and are currenlty paying as agreed, despite who the lender or investor is- would require Congressional action. Because of this, the likelihood of anything happening is fairly grim in the current political and election year environment.

The proposal is quite fundamental and has the potential to have a profound impact on the average American’s wallet. Sadly, it may not get any consideration because of politics. The idea of refinancing current borrowers is far more palatable than the idea of writing off principal balances for borrowers who are not paying their mortgage. It also significantly lessens the probability that the underwater borrower will walk away form the home or become delinquent in the future. this is a good outcome to get us back to housing stability in the future.

It is highly likely that you have a friend or family member who is in this situation. You know someone who President Obama described as a “responsible homeowner”. Someone who bought a home at the hottest time in the market, only to see its value dwindle as the economy started to crash in 2008. Many who purchased homes in certain markets, especially between 2005 and 2008, are suffering right now from the losses in their home value, some losing up to 60% of the value in parts of Florida, Nevada and California. Many of the loans that were originated during that peak period were made by mortgage brokers and companies that no longer exist, and have been sold off to various investors. Consumers don’t have a choice as to who their ultimate investor and servicer of their mortgage will be. In a brief interview with a homeowner, Jennifer Barker from Houston, TX, she noted that she has tried for two years to get help refinancing her underwater mortgage. “My home has lost over 30% of its original value since I purchaed it. The lender that I had my loan with, IndyMac Bank, was taken over by the FDIC and shut down. I have been trying to refinance to a lower rate for the past two years with no success. I have a great credit rating and have never been late, yet they still can’t help me.” Many borrowers like Ms. Barker had no choice about what happens to their loan, but consumers are bound by the rules of the ultimate entity that purchases it and must continue making contractual payments at the original value. Chances are the loan servicer or bank will not refinance your loan if it’s severely underwater. “In these tight times, I could benefit from a few hundred dollars a month off my payment.” she added. It is these exact circumstances that completely call into question what consumer rights are and where reforms are needed to provide additional protection.

In comes the Consumer Financial Protection Bureau (CFPB). In his address, the President also talks about Richard Cordray and the CFPB’s important role in tackling issues on behalf of consumers. Issues like who owns your mortgage, how they are regulated, and what rules they apply to consumers. These are critical steps that will lead toward more protections and equality when it comes to consumers and the overall health of the economy and markets. More Americans need to see and understand how these moves that are being made are truly stitching together some possibilities for real change and housing market reform. They are being done under a lot of political pressure, in fairly unconventional ways, but its seems this President is trying to get what he can done under his own authority, because he knows there really is no other way to get it done.

The State of the Union was not a perfect speech, but it did hit head on some of the key things that need to get done in this country to help millions who are having a tough time. This is reality, despite what you think about the man who delivered the message. The fundamental theme we all should walk away from the speech with is – this is about us. It’s about our country. It’s about ourpeople. It’s about our families. It’s about our communities. It’s about you and it’s about me. It’s not about politics or what party you believe in. It’s not about how conservative or liberal you are. The time is now to stop the dividing behavior. To unite in our communities and demand that things happen to make things better for millions of families in our country.

President Obama Addresses The Nation During State Of The Union Address

Consider calling or writing your Congressman or local representative if you are a ‘responsible homeowner’. Demand they pass refinance laws that give you relief.

From the 2012 state of union address:

“And while government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.

And that’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.”

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