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President Obama considering "principal reduction" as a way to help struggling homeowners
May 12th, 2011
 In a CBS town hall that aired Thursday, President Obama talked about longer term mortgage modifications and principal reductions as potential ways to help struggling homeowners.
A couple notable quotes were:"if we were there for you [banks] when you got into trouble, then you've got to be there for the American people when they're having a tough time"
"principal reduction, which will be good for the ... person who owns the home, but it'll also be good for the banks over the long term" To be frank, I don't have much faith in either of these ideas doing much to help the struggling, but improving, housing market. Although the headlines are still doom and gloom, I say "improving" because of the reason prices are again down… prices are down because the banks are making a bigger push to clear out the foreclosed inventory, and these foreclosed homes sell at deep discounts. Housing will not get back to normal until we have fewer foreclosure sales, and to do so we have to go through a period of clearing out the inventory. So in some regards the most recent struggles are good because they are necessary. But I digress…
So back to the lecture at hand, the reason I doubt these ideas will do much to help is because similar efforts made by the government have proved relatively futile. Granted, there are homeowners who have been helped, just not on the level where it makes an overtly noticeable dent on the housing market. I've had a homeowner come to me who actually went through the HAMP program (Home Affordable Modification Program) and had his monthly payment reduced, but in the end the minimal reduction along with the fact that the loan modification added $20,000 to his principal proved to be too little to keep him from seeking alternative measures (i.e. short sale or foreclosure). We eventually closed on the sale of his home as a short sale...
Then of course there is the fact that Congress would have to pass laws to make the banks cooperate.
Regardless, I can't say that I'm opposed to ideas being presented and effort being made simply because "strategic defaults" from homeowners who are underwater on their mortgage have added to the downward pressure placed on home values.
- Robert E. Wasser - Seattle and Bellevue real estate news, blog, statistics, and market trends
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