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The scam of refinancing underwater mortgages

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There are talks of massive help from the government to home owners with underwater mortgages, Read it here in the New York Times. In reality that is nothing new for mortgage loan modifications have been doing the same for nearly two years with no avail in foreclosures or stopping the decline of property value. Most of those who refinance do it just to buy time and live rent free for a few more months but eventually default again.

Our Real Estate economy is trapped in a dead end road. It is collapsing and cannot get out of it regardless of what anyone does. The best hope would be principle reduction at taxpayer’s expense, something that is not been considered. If there were to be a selective mortgage principle reduction, there should also be a massive public uproar. Those who are not in default or underwater would not benefit from such. Any kind of principal reduction should be fair and universal for it would be done with all taxpayer’s money or debt tapped to them. In such case, there should be a universal payment to the principle and not necessarily refinancing. But don’t pay much attention to this for what is best for the American people is not what our governing leaders do.

The only thing that has been accomplished so far is to keep housing prices from totally collapsing and that is logically inescapable due to many other factors. Millions of home owners that are underwater continue to pay because they still have jobs and no other place to live. Many have topped their Lines of Credit, which now with nearly zero percent interest from the Fed is keeping them below 5% annual rate. If the Federal Reserve were to raise the interest rates, many more could not afford the mortgage payments.

A big contributor factor to home defaults is that Americans have lost mobility because they are strapped to their mortgages. In the past those who lost jobs could sale their home an relocate to a different State or City but now they cannot sale their underwater homes and have to leave them in default in order to secure another job. It appears the in the present jobs market this will continue for years.

In short, loan modifications or refinancing to reduce mortgage payments while leaving the principle value of the homes higher and in some cases much higher than market value is a gimmick and a fraud that does not resolve the problem but just kicks the can down the road. The only real solution is universal principle reduction or default and debt forgiveness. This will not be done because it would be a loss to the Bankers and a gain for the American people. There would be many dire side effects of universal mortgage debt forgiveness but we are going to have them regardless. The gain would be that poor Americans and as the middle class that has been wiped out could much more easily deal with poverty if they at least had a roof over their heads with no fear of been evicted.

Let’s not be deceived, those in Washington are not really trying to resolve the problems of the American people for they created them. Politicians work for someone else other than us. Let’s face the fact that for the vast majority of those going to Washington it means to acquire a lucrative job and not to become a public servant. The only thing they serve the public is the crumbs left at the Bankers dinner table.

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