In This Foreclosure Climate It Might Be Sometimes Foolish To Continue Paying Mortgages

March 25th, 2009

In some instances considering the prevailing foreclosure climate it might be sometimes foolish to continue to pay for mortgages. If however one has a comfortable equity on the house then it will be prudent to continue to meet mortgage commitments. If not, then there are many reasons for not making mortgage payments, especially because of the government stand that is being taken. Many borrowers now owe more than the value of their house. This is because since they took the loan the real estate market has dropped but the mortgage agreement has remained the same.

Recently the government launched a measure that will greatly lower the monthly payments of the borrowers who are at present facing foreclosure. But this is conditional on the borrower being 90 days delinquent on the loan. Critics opines that these steps will encourage people to court foreclosure by stopping payments.
The question of moral obligation to pay off loans arises at this point. The bulk of the criticism for the foreclosure crisis is aimed at predatory lending. President elect Obama said he “recognizes that the real victims in the sub-prime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford.”

From 2007 Congress has started taking steps to help foreclosure victims. The first one was to do away with income tax being charged on cancelled house mortgage loans or on benefits gained from loan waiver and short sales. Initially the tax waiver was for those mortgage debts that related to primary residences. It was due to expire in 2009 but the Congress has extended it to 2013.

There are other conditions. The loan waiver is applicable to debts that are used to purchase or improve the first-time residence. For instance a loan on house equity used to purchase a car will not qualify for loan waiver. Some states are altering their income tax rules following similar lines.

The FHA has come forward with two measures to help foreclosure victims to shift to more affordable mortgages – FHA Secure and Help for Homeowners. Neither of these makes it obligatory for house owners to be current on their mortgage payments. In fact they are expecting house owners to be defaulting before they can apply for help! Critics are loud and vociferous against these measures that encourage defaults.