The new bank bail out plan has a surprise sucker punch in it for the borrower.

Ok they did it, no use bemoaning the lack of effectiveness this bill will likely result in. It is law and we must work with it and hope the additional few trillion dollars of debt we are about to incur will not accelerate us into an irrevocable decline. (Yes I said a few trillion,  as when did the government ever project its costs remotely accurately?)

So here is the part that sounds good but has a back bite you may not realize.

The plan calls for banks participating in this program, accepting money from the government bail out plan, to soften the blow to the defaulting borrowers, the home owners in default and fearing the loss of their homes and thus wanting some form of relief to save their homes for them.

The government is suggesting (not compelling) that the participating banks refinance the bad defaulted home mortgage loans at 85% of current fair market value…and that sounds terrific, finally a break for the borrower.

However if you continue to read the small print, it further says that if the borrower who participates in this restructuring and reduction of the mortgage,  sells his home within five years,  he will share the profits with the government in the following way: 100% of the profit will go to the government if the home is resold within one year of the adjusted refi and then this sharing will be reduced by 10% per year for five years until it reaches a 50% split were it remains indefinitely.

In other words, the government has become a ‘co-owner’ of your home equity and will share the profits with you as described above when and if you sell the home.  This may be a huge cost in the long run, and obviously an attempt to once again lay the cost of the plan on the shoulders of the small borrower the mortgage holder.

Clearly these rules have not yet been formalized and released so they may change dramatically, but this is the direction we are headed, so yes there may be relief but at a huge cost. It is unclear how this bill will apply to business lines of credit and other commercial loans, but it will apply, we will have to wait and see.

Fortunately this is a voluntary program and many lenders will not participate thus opening the door for viable workouts without having to give up the future equity described above. There will be choices for those who know how to navigate this mine field. In fact some options and strategies may be very beneficial if carefully implemented.

I am quite certain there will be many more twists and turns before we see the entire plan and what is in store for us, however whatever the plan calls for there will be strategies to maximise the benefits and reduce the detriments. Further there is the implementation of the plan by the banks. We have seen this before with the  Resolution Trust and RECOLL. The best meaning plan was implemented without care or concern for the borrower and thus resulted in the borrower suffering huge losses and paying for the mistakes of others…which is likely to incur again.

Unfortunately greed remains the controlling factor in out financial services world and until this is routed out there will always be losers and winners disproportionate to the risks taken. This is the sad truth. Thus the borrower must stop trusting and fight fire with fire, get effective representation and perform a workout negotiation that results in a favorable result for you…this can be done.

Take a stand for yourself, your family and your business, refuse to be the victim. Get smart and protect yourself. Get  professional workout help.

Call me if you are stuck within this mess, I will provide you with some alternative paths that may be far more beneficial to you. Norm will set you up with a no obligation teleconference with me.413-584.2581