No Help in Sight, More Homeowners Walk Away

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistantTreasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

Continue but warning see our coverage on Bankers going after people who walk away HERE see also how Taxpayers are picking up the tab HERE  UPDATE 

Modification is Not for Every Borrower: Treasury Adviser

Seth Wheeler, senior adviser to the US Treasury Department, said that one of the main goals of the Obama Administration is to fix the mortgage market in the United States, although federally subsidized modifications may not be appropriate for many borrowers.

Speaking at the American Securitization Forum (ASF) 2010 conference in Washington DC, Wheeler said the focus of the Administration is shifting somewhat away from modifications, as getting borrowers into the Home Affordable Modification Program (HAMP) is not always the best solution.

“Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve [housing] stability,” he said. “Modifications are only for a certain subset of distressed homeowners.”

The Administration’s foreclosure alternative program – the Home Affordable Foreclosure Alternatives program,  or HAFA – will provide incentives to servicers and borrowers that pursue short sales rather than foreclosure. AsHousingWire magazine reports, critics of HAFA say it will dull short sale experts’ competitive edge while other sources warn homeowners will still see short sales as the loss of homeownership.

“They can’t keep their home, but they can avoid foreclosure,” explained Colleen Hernandez, CEO of theHomeownership Preservation Foundation (HPF) – a nonprofit that partners with local governments, borrowers and lenders to facilitate foreclosure alternatives and promote homeownership.

“We are seeing middle class unemployed,” Hernandez said, adding the emerging class of struggling homeowners are unused to financial hardship. “They are slow to apply for benefits, slow to pick up a job that pays less, slow to take up the new world order.” Continue