New Steps Being Taken to Help Foreclosure Victims

On 26th March White House is scheduled to announce new steps to be taken to help foreclosure victims. It will involve the reduction of loan balances on mortgages for some of the borrowers. The step is fraught with controversy and has long been resisted by the lender’s lobby. The new measures will also see to temporary help being given to those of the homeowners who were unemployed. The latest measure will be an indication of the goodwill of the administration in its effort to contain the increasing number of foreclosures.

As per the plan the FHA would be playing a larger role in the efforts of the government by permitting some who have gone underwater to refinance through loans having the backing of the government. It has to be remembered that FHA does not advance loans but insures the loans made so that the lenders are guaranteed against losses. But already FHA is weighed down with losses because of the toxic loans it has so far backed.

The measures will be addressing two of the pressing problems plaguing the housing market – underwater mortgages and unemployment. This is the latest revamping of the programme Obama had introduced one year ago – Home Affordable Modification Program or HAMP.

Unemployed borrowers will get their monthly payments sharply reduced or they will be allowed a grace period free from making any payments – the period stretching from three to six months.

The new move will also expect the banks to think about writing down the loan amount – this being part of the strategy of bringing down the monthly amount. The plan continues to be voluntary. By it interest rates would be cut down to a record low of 2% and terms may be extended to up to 40 years. The federal government will be making incentive payments to both the lenders and borrowers and for this it has set aside $50 billion.

Under the revised plans the banks would get extra payments from the administration proportionate to the principal that it forgives. For the borrowers to benefit they would have to be current on their dues for over three years. Only this would allow the lowering of the principal on their loans.
HAMP had been originally crafted to assist defaulting borrowers or at risk from doing so. But this FHA help would be for borrowers who are current to be eligible for FHA guaranteed loan once their principal has been lowered. Nearly 24% of the borrowers are underwater as per the findings of First American CoreLogic.