Tuesday, November 25, 2008
US government plan to pay peoples mortgages for them
The US government's 'Hope for Homeowners' program tells lenders to write down the principal on peoples loans to 90% of their home's current value, and lowers the interest rate so that the monthly mortgage payment is no more than 38% of their take-home pay. In return, the government would guarantee to pay off the loan if the borrower ever defaults. These rules only apply if the homeowner has missed three consecutive mortgage payments, a perverse disincentive to keep paying your mortgage. The new modified loans are re-defaulting at a rate of 50%. Thus the government is going to be paying for half the mortgages it is guaranteeing.