No Relief For The Responsible

Here is another cruel irony to the burst of the housing bubble, some homeowners who are working hard to religiously make their mortgage payments can't refinance in order to avoid losing their homes.  Meanwhile, hundreds of thousands of homeowners have been able to stay in their homes without making a single mortgage payment in months or even years by "squatting".  

Many struggling homeowners received financing during a time of easy credit when interest only loans and option adjustable rate mortgages were given to the marginally qualified.  At the time, they were told they could refinance out of those loans into fixed rate mortgages once the payments started to balloon.  Unfortunately, that day has never come for some homeowners no matter how impressive their credit score or payment record.

Many lenders won't refinance underwater mortgages because it would mean huge losses for them if the borrower defaults.  Although, if a borrower defaults, lenders are more likely to modify their mortgage.

There is some hope out there for these homeowners, it's called the "Helping Responsible Homeowners Act".  Sponsored by Senator Barbara Boxer, it would require banks to offer interest rates comparable to what they are giving to borrowers who are not underwater.  It would also ban risk based fees for mortgages issued by Fannie Mae or Freddie Mac that can be as much as 2 percent of the loan principal.

Here is more information on this legislation:

http://boxer.senate.gov/en/press/releases/012611.cfm

Tags