With plenty of resistance from the Federal Housing Finance Agency (FHFA), the question this week when we consider real estate 2012: will banks finally mark to market? Is principal reduction finally on the way for struggling homeowners? And as usual, providing personal finance advice, real estate advice and consumer advice on the Ilyce Glink Show March 11, 2012 on WSB Radio.

Feathers are being ruffled all over the place as the battle rages between the FHFA, the agency regulating Fannie Mae and Freddie Mac in their conservatorship, and the Obama administration/Fed Chairmen Ben Bernanke over a plan to force banks to finally institute principal reduction for drowning homeowners.

The White House feels strongly (as do I) that this form of mortgage forgiveness, which would call for outstanding mortgage loans to more closely match the property’s actual value, is critical to helping families stay in their homes and stem the tide of foreclosures. This proposed rescue for the housing market has adopted new urgency due to recent reports which estimate that 28 percent of borrowers are underwater with their mortgage loans. The numbers haven’t moved for months and, if anything, they are only worsening.

Experts who have been right in the past are estimating that we stand to lose as much as an additional 10 percent in home equity across the board. If that prediction should pan out, more homeowners will be underwater, and we should expect the following:

  • People will not be able to refinance, unless by some miracle, they should qualify for the HARP 2.0 program.
  • Homeowners will not be able to sell unless their mortgage lenders will take a short sale.
  • If you want to move but can’t sell, it may be difficult to locate renters who can pay enough to cover costs.

But the notion of writing down principal, which has always been feasible, has produced so much emotion from banks and mortgage lenders. But I have to tell you, without an attempt to finally force lending institutions to mark to market, it could be decades before home values bounce back.

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