Solutions for Underwater Mortgages On the Way

: Chris Lee Law Firm

  Filed under: Debt

The housing bubble burst in 2007, and people are still arguing about what caused it. But whether subprime lending, tax policy, deregulation, or the ‘mania’ for homeownership is to blame (and it is likely a mixture of all these causes and more), the fact remains that five years later, people are still feeling the aftershocks. Many are still struggling to get out of their underwater mortgages and trim some of their mortgage debt, or fighting foreclosure. Ten million homeowners are burdened with underwater mortgages, which means they cannot sell their homes for enough to pay off the mortgage debt.

Mortgage Debt Help from Mortgage Resolution Fund

In the face of this continuing foreclosure crisis, four nonprofit housing authorities decided to create the Mortgage Resolution Fund to help deal with the issue head on. MRF is a partnership designed with the purpose of buying up delinquent mortgages, and then working with the homeowners to avoid foreclosure and get out from under heavy mortgage debt. So far they have purchased over 1,000 underwater mortgages, helping as many homeowners in hard hit areas of Ohio and Illinois to modify their loans, and get out from under their mortgage debt.

Best of all, it seems as though the nonprofit program will be able to pay for itself, using revenues from the payments on these restructured mortgages, and also from home sales, to fund further loan purchases.

MRF founders envisioned purchasing huge amounts of mortgage notes at one time from big lenders such as Wells Fargo and Citibank, but have encountered some resistance. Big banks are wary of the way this loss of value would affect the appearance of their loan portfolios, resulting in the loss of investors.

The reason MRF has successfully connected with homeowners is simply that, embarrassed by their mortgage debt and frightened of foreclosure, people are more willing to work with a community nonprofit than with a big bank.

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