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Financial Analysts Warn Congress of Need to Address Negative Home Equity

Created: On December 8, 2009 @ 5:01 pm In

Financial analysts addressed Congress on December 8, warning lawmakers that failure to address the widespread problem of [1] negative home equity could cause mortgage delinquencies to “spiral out of sight.” In her¬†testimony to the House Financial Services Committee, Laurie Goodman, a senior managing director of Amherst Securities Group, noted that of 7.9 million mortgage delinquencies during the third quarter of 2009, as many as 7 million are caused by negative home equity. This phenomenon, popularly called “being underwater,” occurs when home value decreases to less than the mortgage loan(s) owed against a home.

Ms. Goodman and other experts assert that failing to provide relief to homeowners who owe more in mortgage debt than their homes are worth could prolong high levels of foreclosures indefinitely. Mortgage foreclosures, in addition to compromising homeowners’ credit, can cause neighborhood blight, further decreases in surrounding home values, and higher crime rates.

Homeowners Struggling with Unemployment, Debt, and Decreased Home Value

Further testimony by Herb Allison, the U.S. Treasury’s assistant secretary for financial stability emphasized the failure of the government’s Making Home Affordable program to provide homeowner relief. Allison noted that of approximately 3.2 million households targeted for mortgage help, fewer than 1.5 million are likely to qualify under [2] Making Home Affordable eligibility requirements. Combined with a national unemployment rate of 10 percent, homeowners struggling with negative home equity may not find the help they need through traditional debt management options the include [3] debt consolidation through consumer credit counseling services. Unfortunately, desperate homeowners juggling high levels of debt may be inclined to walk away from home loans that are far in excess of what their homes are worth. Ultimately, such homeowners may decide to let their homes go to foreclosure, or they may file for [4] bankruptcy protection. Either option leads to severe credit problems because legal records can remain on consumer credit reports for up to ten years.

Debt Consolidation Through Credit Counseling

Whether or not you own a home, if you’re having credit problems it’s important to focus on the fact that you need to keep a roof over your head. If you can afford to continue making mortgage or rent payments, you can take initial steps to resolve debt issues through a credit counseling program. Benefits of consumer credit counseling may include:

  • An objective review of your finances and help establishing a cash based budget
  • Assistance with prioritizing payments, budgeting, and developing a plan for getting out of debt
  • Determination of options available for debt resolution, including debt consolidation and repayment
  • Possible waiver or reduction of finance charges and fees that add to your debt
  • Possible reduction of total monthly debt payments and debt consolidation of several payments
  • Negotiations with creditors on your behalf to stop or minimize collection calls and correspondence
  • Debt consolidation through a repayment agreement between you, your credit counseling agency, and your creditors

Before deciding to stop making mortgage or credit card payments, please consider debt consolidation or credit counseling alternatives; these  options could help you keep your home and minimize damage to your credit.

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URL to article: http://www.debthelp.com/blog/2009/12/08/financial-analysts-warn-congress-of-need-for-addressing-negative-home-equity/

URLs in this post:
[1] negative home equity: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aK_i0u8bqxeE
[2] Making Home Affordable eligibility requirements: http://www.makinghomeaffordable.gov/eligibility.html
[3] debt consolidation : http://www.debthelp.com/debt-consolidation/credit-counseling.html
[4] bankruptcy: http://www.uscourts.gov/bankruptcycourts/bankruptcybasics.html