Abandon all Hope all Ye That Enter Here - Dante
The New York Times calls the new program HOPE a lead balloon:
Under the program, the government will insure up to $300 billion in new, more affordable loans for troubled borrowers. For the insurance to kick in, however, lenders must first voluntarily refinance the delinquent mortgages by reducing the loan balances to 90 percent of the home’s current market value.
In exchange, lenders would avoid the expense of foreclosure and uncertainty about being repaid. The government would stem the social and economic damage of more foreclosures, at presumably little risk to taxpayers.
There’s just one problem. At a Congressional hearing in September, lenders were lukewarm about participating in the new program — reluctant, it seems, to take the loss that comes with reducing loan balances.
The lenders, including JPMorgan Chase, Bank of America, Wells Fargo and CitiMortgage, a unit of Citigroup, all said they were taking other steps to help troubled borrowers, like reducing a loan’s interest rate or extending its term. That’s helpful, but the industry’s efforts don’t go far enough: defaults and foreclosures continue to outstrip efforts to rework bad loans.
As home prices fall, the most effective modification is to reduce the loan balance; otherwise, borrowers are in the position of repaying a loan higher than the value of the property. That burden can become unbearable when combined with unemployment or reduced work hours or unexpected expenses like medical bills
The new Bail out? The key phrase is may encourage. There is no law to require renegotiation of a mortgage or most importantly allow bankruptcy judges to restructure the debt on a primary residence.