Expert Proposes Rewarding Good Borrowers

At least one mortgage financing expert thinks that the government ought to consider rewarding people who are in financially sound shape and who want to continue to pay their underwater mortgages on time.

Keith Gumbinger, a vice president at the HSH Associates mortgage-consulting firm, told Fortune magazine that he wants the federal government to issue what he calls, “value gap coverage.”

It would work this way: You bought a home for $350,000 in July 2006 with 100 percent financing at 6.8 percent. Now the property is worth $280,000, but your mortgage balance is $334,000. You can’t refinance because you are underwater, but willing and able to pay. In Gumbinger’s scenario, you’d get a new $280,000 mortgage at 4.7 percent. The government would guarantee the remaining $54,000, on which you’d pay 4.7 percent interest to the current mortgage holder. This reduces your payments by $6,700 a year – about 25 percent. No mortgage lender has to take a write down.

You can read the specifics of his Gumbinger’s plan here.

Source: Fortune, Allan Sloan (09/07/2010)