Is debt forgiveness for homeowners plan a cure for walkaways?
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A debt-forgiveness plan being floated by the Milken Institute in Santa Monica is the subject of Tom Petruno’s column today. Here’s how it would work:
Say an owner’s mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000. The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.
The Milken folks say the cost to taxpayers to save 1.5 million homes from foreclosure -- or people walking away -- would be in the $75-billion to $100-billion range. And, if I’m reading it correctly, this could spare lenders from having to take ‘haircuts on their loans.’ Anybody have a problem with that?
-- Lauren Beale
Thoughts? Comments?
