Terrible idea. Terrible.

From the Boston Globe:

Massachusetts officials today are expected to unveil a $250 million fund to help delinquent borrowers of subprime mortgages refinance into more affordable loans to prevent them from losing their homes to foreclosure.

The program will allow only those subprime mortgage borrowers who are 60 or fewer days behind on their monthly payments to refinance into 30-year loans at fixed rates of about 7.75 percent.

Couple things I’d like to add to the discussion.

First, I wonder how many of these loans originated from Massachusetts’ own MassHousing association. Did they lend (or find lenders) for borrowers who shouldn’t have bought homes? I think they did, I think many people who used MassHousing were subprime borrowers – so MassHousing is in effect bailing itself out.

Second, even if I could accept the idea of a bailout, I definitely could never support the idea that the banks will be forced to accept lowered loan amounts. The story from Ms Blanton says that if a borrower took out $250,000 but his or her home is only worth $230,000, then the bank would have to accept the lower $230,000 as the full loan amount.

Third, even if the banks accept the lower amount as the total due, the borrowers won’t be out of the woods. It’s very very very very very likely that the IRS will assess a TAX on that $20,000, as it is basically a “gift” from the bank to the borrower. This is what happens if your bank accepts a lower repayment of your home mortgage loan amount, in a short-sale, for example.

Fourth, this just delays the inevitable, for many. They didn’t get into financial trouble because their home loan payments increased $200, $300, or even $500 per month. They got into trouble because they lost their job(s), they got sick, or they couldn’t afford to pay it, from the very beginning. They can’t pay ANY of the loan, not just the higher, reset amount.

Fifth, sorry, but I don’t see this (or other loan forgiveness programs) as “bail-outs” of the lenders. Most lenders would probably prefer to just foreclose and take the hit against their earnings, quickly, then get on with things. They certainly don’t want cities and states to get involved, mucking things up.

The Boston.com message boards were alive with comment today – almost 100% to zero against the Commonwealth offering any assistance at all to these borrowers.

Of course, most of those commenters are insane people, so it doesn’t mean much, in the scheme of things.

State to refinance troubled mortgages – By Kimberly Blanton, The Boston Globe

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Updated: 1st Q 2018