Interesting article at Yahoo about folks behind on their mortgage getting their principal reduced. As I have written previously, this is a bad idea. It will motivate others to default to get their mortgage reduced. The Yahoo article profiles a couple folks probably hoping for sympathy, but when I read their tales, I couldn’t muster any bleeding heart feelings:
Joaquin Guzmann bought his Long Beach, Calif., house 23 years ago for $137,000 but has since struggled financially.
He moonlighted from his ground-servicing job with Continental Airlines and took out second mortgages and cash-out refinancings. By last year, his mortgage had ballooned to more than $518,000, counting late fees.
“I fell behind,” he said. “I tried to reduce my payments but nobody was listening to me.”
He got luck in the loan-servicing lottery when RoundPoint took over his account. The servicer combined his first mortgage with his home equity loan and lowered the total balance by 44% to $28,000. The servicer also lopped a point off his rate, lowering his monthly payment to $1,570.
So this guy pulls out over $350,000 in equity, and he should get a mortgage reduction? With an initial mortgage of $137,000, he should have zero problem making his mortgage. If he refinanced as rates dropped to 5%, his mortgage would only have been $723 per month. And, this is if he never paid down any principal over the 20 years. Considering he worked in position at Continental that is probably unionized, he should not be facing a huge financial issue. Maybe he had some serious problems like an uninsured health problem (probably not due to the fact that unions get nice medical benefits compared to everyday Americans) or a financial problem in his extended family, but the article doesn’t mention any extraneous circumstances. Certainly, if he had any tear jerking reasons to yank $350,000 out of his home, the writer would have mentioned it. My bet is this guy took some damn nice trips in a tripped out auto.
Larry Casanova, a New Jersey truck and snow-plow driver, bought a house in Cherry Hill in early 2008.
“I’ve been a carpenter most of my life and I bought the house to renovate and flip, but the market turned around,” he said. “I tried to sell but I wasn’t even getting nibbles.”
Here again, why should he get a break? If you bought a stock and it tanked, should you get part of that money back? Of course not. So why are we worried about helping a home investor out?