Delinquencies will skyrocket in the coming months to 25% due to this bill. Those who are meeting their payments are incentivized to stop making payments to qualify for the bailout. The bill is horrific. Home prices will simply trade based upon the valuation indicated by the new loan. It's analogous to a currency deval. This is catastrophic.
A) Why wouldn't anyone substantially underwater on their equity take advantage of this deal, neighbor bragging he got a real sweet deal notwithstanding? Walking away is probably still their best option especailly when they realize that they will now be living in a neighborhood of a substantially lower socio economic class of people than they were when they moved in but as you say they may be overly concerned about their credit score. B) How willl it impact their credit if they do take the bail out deal? C) $7500 is going to do what in what neighborhood? This is possibly one of the worst peices of legislation to come down the pike in the last decade. It does not accomplish what it purports to and it does what it is supposed to do (stealth baliout of the banks) very inefficiently. This is what you end up with when the authors (Dodd,Frank,Paulson)are trying to accomplish a goal (to bail out the banks and the Fed) but have to sell it to the American people who would be none too happy to be reduced to being house poor for the next 5-10 years just to save the skin of the likes of Bill Gross and Dodd's cadre of well heeled and politically generous (to Dodd and Frank) CT hedggies.
the value he places on good credit will be proportional to the amount of value he's lost in his property.
this actually causes a cascade in subprime, so that the pain is realized the quickest and doesn't drag out over multiyear spans. the 'neighbor' model, actually precipitates pain to be realized sooner then later. Will ultimately benefit whoever has the biggest pockets to step up to the plate. ie FED.
Not to mention it's just a 0% interest loan. It just helps people (again) buy houses they can't afford.
Not to mention those who have already been foreclosed. Do they not have the right to bring civil action now that they have been delegated to reside in the ruins of landlords after being tossed from the McMansion? Should they not get thier slate washed clean and begin from afresh?
This bill rewards the shaddy characters out there that have bad credit for a reason and systematically game the system. Poor fellow..... forced by an evil bank to take several hundred thousand K. to buy and live in a house even if he has a history of not paying people back and sticking it to every creditor. (perhaps the same fellow that slipped on a banana peel and is suing the local grocery store or is obese and it is all McDonalds fault) This and other not so exagerated cases are who your hard earned tax $ are rewarding. Decent hard working people who would not default on any loan.... ever.... (within their power).... Are the ones who are left holding the bag. This type of legislation rewards people to game the sytem.
Regarding credit scores... ... given such a large body of folks will have compromised credit, they may become a special "class" where their credit history will not be allowed to carry the typical weight in the credit worthiness decision making process. Has anyone seen a limit to the range of principle reduction that can be negotiated under the pending bill? Back in late '07 when the matter of principle reduction was touched upon, $50k seemed to the range. I assume the financial reality would dictate just how far the lender was willing to modify. I found it interesting how some of the US House folks discussing the bill, would have liked to see greater negotiating power for the borrower regarding the implementation of interest, term and finally principle reduction, suggesting even in this pro borrower bail out plan, borrowers should be given even greater priority over the lender.