You Know It’s Bad When…
By Ryan Healy | February 12, 2008
The crushing weight of debt is affecting the economy more every day. Americans are increasingly finding themselves unable to pay even their mortgages or minimum payments.
This is becoming especially evident in the housing market where foreclosure rates are climbing. In light of declining home values, many home owners are choosing to walk away instead of “working something out.”
But work something out is exactly what the banks want to do. You know it’s bad when you’re already 90 days behind on your mortgage and the bank says “let’s talk.” In a normal economy, the rug is yanked out from under you. In today’s economy, banks are going to try to renegotiate terms to get you to stay put.
At least that’s what the news says today.
The plan, which has not been officially announced yet, is called Project Lifeline. It is aimed at home owners who are over 90 days past due on their mortgages. According to the CNN article…
The plan, called Project Lifeline, will allow overdue homeowners to suspend foreclosures for 30 days while they try to work out more affordable terms with lenders.
Why would the federal government and banks want to do this?
1. A bank could easily go bankrupt if it is hit with a glut of foreclosures which it can’t unload.
2. If banks start to suffer heavy financial losses, that will push the economy down even further in the form of lost jobs, consumer panic, etc.
3. Home owners who are doing financially well may decide to sell if they see home prices dropping fast. This would put even more downward pressure on an already weak housing market.
I’m sure there are more reasons banks are willing to negotiate more favorable terms, but you get the gist.
So, if you are 90 days behind on your mortgage payments, or you’re approaching that limit, there may be good news for you. But there’s no good news for the economy.
And, unfortunately, a government/bank plan such as Project Lifeline is not curing anybody of anything. It is merely treating the symptoms of a great underlying sickness: way too much debt.
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February 19th, 2008 at 7:57 am
Carnival of Everything Finance: #13
Welcome to the February 15, 2008 edition of Carnival of Everything Finance.
We had over 130 really good articles submitted for this edition. Unfortunately I could not include all of them.
Earning Money
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