Does new plan for some to not pay mortgage help or hurt?

Help for underwater homeowners?

In an effort to help homeowners that have found themselves unemployed, underwater, and unable to qualify for traditional loan modification to avoid foreclosure, $2.1 billion in assistance has been allocated by the Obama administration to ten states.

The administration is seeking innovative and creative ideas from these troubled states and today, Arizona, California, Florida and Michigan have submitted their plans to use their portion of funds totaling $1.4 billion. The plans introduced vary in method but all include subsidizing mortgage payments for up to 24 months as well as paying down homeowners’ loan principle.

Plans for Nevada, North Carolina, Ohio, Oregon, Rhode Island and South Carolina are still under review by the Treasury Department and all ten submissions will be reviewed in full and made public over the coming weeks.

Supporters and critics

Supporters of the plans to use government funds to mitigate unemployed and underwater homeowners’ mortgages point not only to helping the economy overall but note that helping those underwater protects home values, therefore helping communities to remain or become more stable.

Critics call the plan reckless and say that it incentivizes being unemployed and discourages the very people receiving help from seeking employment.

Perhaps government incentives for banks to reduce principle on underwater mortgage holders would be an answer that satisfies both critics and supporters? Do you think this plan to subsidize loans for up to two years is helpful or harmful and is there a better way? Tell us in comments.

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