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  • Earlier this year Warren Buffet surprised America by asking the IRS to increase his taxes. Now David H. Stevens chief executive officer of the Mortgage Bankers Association is doing what amounts to the same thing by asking the government to look into new mortgage help options such as mortgage forgiveness.

    However, don’t think philanthropy is the reason for suggesting mortgage forgiveness as a solution to high mortgage delinquency. Stevens simply understands what works and what doesn’t when it comes to coaching homeowners out of delinquency and back to a culture of regular payments, which is, after all, what mortgage bankers want.

    According to Stevens, mortgage help options such as principal reductions–another term for mortgage forgiveness or reducing the balance of a mortgage–and lowering interest rates place cash flow into homeowners hands by reducing monthly payments, which incentives borrowers to honor their mortgages.

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    It is interesting that Stevens, the CEO of the mortgage bankers association, believes these measures would help the mortgage industry. It was only last week that Obama unveiled his administration’s plans to assist the housing market by reducing the mortgage insurance premiums for borrowers who refinance their mortgages and encouraging lenders to reduce the mortgage balance of underwater homeowners. The reaction of Edward DeMarco, overseer of Freddie Mac and Fannie Mae, was that these measures would cause unsustainable losses for the mortgage lenders.

    In a letter DeMarco sent to Elijah Cummings, a Maryland Democrat, forgiving the debt on Freddie Mac loans would cost the taxpayer $100 billion.

    The FHA does not seem to share DeMarco’s apprehension Recently the FHA reduced its upfront premiums for borrowers from 1 percent to 0.01 percent of the loan balance. This will reduce the payments of the average borrower by $$1,000 a year. According to FHA estimates, this would benefit up to 3 million borrowers.

    Government support goes further than reducing interest rates or mortgage balance sheets. Obama’s relief plan also deals with veterans under the Service Members Civil Relief Act which protects the interests of veterans who have suffered from a foreclosure wrongfully. The act provides borrowers whose foreclosure has been mishandled with a minimum compensation of $116,000.

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