Underwater Ohioans Rebel for Principal Reduction Cause

Sometimes, to bring attention to what one considers to be an unjust law or policy, an act of rebellion occurs.

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In Ohio, three current but underwater borrowers have decided to go on a ""mortgage strike"":http://www.mortgagestrike.org as an act of civil disobedience against ""FHFA's stance on principal reduction"":http://dsnews.comarticles/demarcos-opposition-stirs-up-principal-reduction-debate-2012-08-01 the lack of help to address underwater mortgages.

According to CoreLogic, 10.8 million, or 22.3 percent, of residential properties with a mortgage are underwater. One proposal to address the issue is to offer principal reductions on these underwater mortgages. However, FHFA Acting Director Edward DeMarco has decided not to allow principal reductions on Fannie Mae and Freddie Mac-backed mortgages, citing taxpayer losses and a moral hazard issue.

""Empowering & Strengthening Ohio's People"":http://www.esop-cleveland.org/index.php?option=com_content&view=article&id=27&Itemid=32 (ESOP) is the organization that introduced the idea of the mortgage strike. In a document from the organization, ESOP explained that the decision came about after ""long and careful consideration.""

""[T]he continuing lack of concern from Washington about this devastating problem left us little choice but to use ‘civil disobedience' to petition the government for relief from unjust debt oppression,"" the group said.

The strike takes after a statutory section of Ohio law that allows for a court supervised structure for organizing a rent strike against a landlord who refuses to make repairs. In a document, ESOP explained ORC 5321.08 allows tenants to pay rent to the court instead of the landlord, and the landlord must answer to the court for the alleged violations and correct the violations in order to receive the funds.

Rather than paying their servicer, the three Ohio homeowners will pay their principal and interest to an attorney who will hold their payments in an escrow account.

Paul Bellamy, director of development and research at ESOP, said they want to emphasize that the strike is not a way to avoid paying one's mortgage since the participants are current and will continue to pay their principal and interest. Instead, it is a way for the borrower to make their voices heard.

Anita Gardner, one of the mortgage strikers, is underwater by around $62,000. The other two, Sally Fluker and George Robinson, are upside down on their mortgage by around $38,000 and $44,000, respectively.

According to data from ESOP, 530,000 households, or 25 percent of homeowners, are underwater. Another 125,000 households are on the verge of falling into negative equity.

In order to become a mortgage striker, ESOP outlined rules, one of which is that a participant must understand the potential consequences of becoming a striker, which are an impaired credit profile; decrease in FICO credit score; default status; and foreclosure and other litigation.

Bellamy said that while foreclosure is a possibility, he said they don't anticipate a foreclosure, and they are not going to let anyone lose their home.

The funds accumulated from the strike will be released to the servicer at the striker's request or if the court orders release of the payment.

Aside from understanding the rules, a mortgage striker must be current and underwater, make full payments into an escrow account, cover taxes and insurance, and comply with strike rules for handling monthly payments into escrow.

This month will be the first month the strikers will make their payments into an escrow account rather than to their mortgage company.

The mortgage strike does not offer any assurance of results, and the participants understand the potential consequences. Despite these things, they still wanted participate for the sake of getting a message across.

The point we're trying to make is not about particular servicers or investors or banks; it has to do with a national policy and no one seems to be confronting it, said Bellamy.