Is the only solution for banks to rewrite loan terms? Will their stockholders put up with this? Why penalize those who are keeping up with their mortgage payments?
One recent report, from property research firm First American CoreLogic, estimates that at least 7.5m Americans are already in negative equity – owing more on their mortgage than their home is worth – with another 2.1m on the brink. MoodysEconomy.com estimates the negative equity figure could be as high as 12m.
More than 1m homeowners are already in the process of having their home foreclosed – or repossessed – by their mortgage lender, and a further 4m have missed at least one monthly mortgage payment.
In spite of these figures, the end does not seem to be in sight. Most economists agree that the US has yet to reach the nadir of its mortgage crisis, but until it does, the economy cannot really begin to turn the corner.
As Sheila Bair, chairman of the Federal Deposit Insurance Corporation, has stressed in recent days, a portion of the Treasury’s $700bn Troubled Assets Relief Programme (TARP) could be well used to assist those struggling to meet mortgage payments.
Her plan – which she continues to discuss with Treasury Secretary Hank Paulson – would see 3m homeowners given some assistance. The problem with such a scheme, however, is that it would be terribly divisive, leaving out millions of taxpayers who are having difficulties paying their mortgages – and yet will still contribute to the TARP fund through their taxes.