Meltdown will leave vastly changed economy

What is the latest on homeowner help for Californians that are under water? We are still under water and thus cannot refinance and have a loan that will reset in two years and do not have a Fannie Mae or Freddie Mac loan. What happened to the “cramming down” option? We went to an attorney and were told there’s nothing to help us even with the current set of financial helps from Washington. Are we doomed?
Cynthia E., California

Borrowers who owe more on their mortgage than their house is worth may not be “doomed,” but they present the toughest challenge for government officials, housing advocates and other groups who are working to stop foreclosures.

No one has figured out the answer to the thorniest question in the whole housing mess. Who is going to bear the loss from the housing collapse: The lender who wrote a mortgage on a house that has dropped in value or the homeowner who signed the loan and agreed to the risk?

The question isn't going away. More than 15 million people, or about one in five homeowners, are “under water,” according to Moody’s. That number will continue to grow as long as home prices keep falling.

The government’s Hope for Homeowners program is a good start in breaking the logjam of negotiations between lenders and borrowers, but it won’t help if you've lost your job and can't afford even a lower monthly payment.

Under the plan, lenders agree to cut the interest rate on the loan and take a loss on payments lowered to 38 percent of a borrower's income. The government subsidizes a further reduction to 31 percent of income. If necessary, the loan can be extended to 40 years to bring it under the cap.

A final step, forgiving some of the principal, may help some borrowers. But the decision to do so is entirely up to the lender. For the past year, Congress has been debating a plan to let bankruptcy judges order lenders to take less than the full amount — the so-called “cram down” provision. But the latest effort to change the law failed this month.

That leaves few options for homeowners who can’t get a lower payment from their lender. This week, the government expanded the Hope for Homeowners program to formalize and streamline a process that millions of families are going through as they lose their homes.

One option is to sell your house with the lender's permission for less than the value of your loan in what’s called a “short sale.” Though you lose your home, you can move on without owing anything to the bank. (Another option lets you sign over the property title to the lender and walk away in what’s called a “deed in lieu of foreclosure.”)

The program is only two months old. This week, the Treasury said it has helped some 55,000 homeowners. But the government has a long way to go to stop the wave of millions more foreclosures.

Also in msnbc.com business Companies scale back, cancel holiday parties Answer Desk: Overpaid and bailed-out at banks? Your Career: ADA expands to cover more workers Venza sorta-crossover is Toyota’s latest mistake   Video: Green motorcycles are born to be mild

MORE FROM ANSWER DESK

Answer Desk Section Front

Who needs overpaid bankers? Who gets extended jobless benefits Easing job losses point to wobbly recovery Long-term jobless face frayed safety net GDP growth overstates case Recession over? Readers don't believe it Breaking down the cost of health care Commercial real estate bust looms 'Official' job numbers don't tell the whole story Getting mortgage help Answer Desk Section Front   Add Answer Desk headlines to your news reader: