How banks are hurting good payers

No, I'm not going to talk about how the government is bailing out those people who shouldn't have bought a house in the first place. That's unfair and wrong alright, but I'm talking about what banks are now doing to people like you and me, who bought their homes with real down payments.

If you bought your home with a nice 10-20% down payment and your house depreciated in value, enough to eat into your whole equity, you're now under water. And once you're under water, your options to refinance are few, if any. First, you're locked in with your current lender, since no other banks will lend you money, since the loan would be higher than the current price of your home.

If your bank sold you loan to Fannie Mae or Freddie Mac, you may still refinance if the loan-to-value ratio is not above 105%.

But otherwise, if your bank is still holding your loan in their books, you're locked with them. That's how they're hurting people in the first place: you can't go anywhere else and you can't benefit from the new government program for those with up to 105% loan-to-value loans. Once locked in, banks will not refinance unless you stop paying.

Now, how insane is that? If you're a good payer, then you don't deserve to refinance. But if you default, then you're allowed the benefit of a refinance or a loan modification!

By encouraging bad behavior, banks will get more of what they've already gotten: bad debtors.

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