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A debate has sprung up in the San Francisco Chronicle and on other blogs about whether it’s right for homeowners to deliberately stop making payments in order to qualify for programs that reduce their mortgage payments. There’s discussion also about whether journalists should even report that as an option.
I called Evan Wagner, press spokesperson for IndyMac, the big California bank that was seized by the FDIC in July. FDIC chairman Shelia Bair has been using IndyMac as laboratory to test efforts to renegotiate loans en masse. Since she launched her program big banks such as Bark of America and quasi governmental mortgage players Fannie Mae and Freddie Mac have been introducing similar programs. But do you need to stop making payments to get attention?
No, says Wagner. It is true that companies that collect payments on mortgages that were sold on Wall Street are only allowed to modify loans that are in default or at serious risk of default. To qualify for the FDIC program you need to be at least 60 days past due. But Wagner says the bank is working out deals with other borrowers, so it makes much more sense to go that route first.
The simple fact is that to even begin to qualify your house payments have to be greater than 38% of your gross income. Not working a second job or overtime, as some people have suggested, would be crazy in this economy. And deliberately stopping payments could backfire if the FDIC loan officers say you don’t quality, you may actually end up losing your home.
FYI, IndyMac is having an open house at the Van Nuys, Calif. convention centers on Saturday Nov. 22. from 10 AM to 3 PM. They’ll have twenty loan officers out there considering homeowners’ loan problems.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.