Archive for the 'Stop Foreclosure' Category

Last February, just as repo homes filings in the country reached more than 290,000, representing a 30 percent increase from a year ago, the Obama Administration launched its Homeowner Affordability and Stability Plan to help distressed homeowners reduce their mortgage payments through refinancing or loan modification.

The rapid spread of repo homes has been blamed by economists and lawmakers on reckless borrowing and irresponsible lending. Since August 2007, about 1.2 million repo homes were reported while 11 percent of mortgages were on the brink of foreclosures.

An estimated 12 million homeowners have mortgages that surpassed the fair market value of their properties, while about 4 million were behind on their mortgage payments. And to top it all, both home prices and sales plummeted to an all-time low.

The $75 billion repo homes prevention plan is expected to help distressed homeowners protect their properties from foreclosures and stabilize the housing market.

Under the refinancing component of the plan, troubled borrowers whose mortgages are owned or backed by Federal Home Loan Mortgage Corp. and Federal National Mortgage Association may be eligible to change their mortgages into 15-year or 30-year fixed-rate loans.

The refinancing plan is expected to help nearly 5 million distressed homeowners whose loans are owned and backed by the two government-sponsored enterprises. To quality, homeowners must not be behind on their mortgage payments for over 30 days in the past year and they must owe not more than 105 percent of the fair market value of their properties.

Meanwhile, the loan modification component allows mortgage servicers to voluntarily lower interest rates to allow troubled borrowers to save their properties from being added to the growing list of repo homes. The federal government would subsidize a portion of the amount needed to reduce borrowers’ mortgage payments.

For the almost 4 million distressed homeowners targeted by the loan modification plan, they must not be behind on their loan payments or on the verge of defaulting to qualify for this component of the repo homes prevention plan.

Qualified homeowners may take advantage of reduce monthly payments to 31 percent of gross income.

Another program aimed at reducing the number of foreclosure properties is aimed at first-time homebuyers. They will be given tax credits of almost $8,000 for every foreclosed home they will purchase from January 1 to November 30, 2009.

The affordability plan is part of the $275 billion foreclosure prevention plan of the Obama Administration.

When Fannie Mae and Freddie Mac have been nationalized in September, they have been transformed into housing-aid agencies. They have already frozen a lot of foreclosures last year and this year, they are pioneering programs that would let borrowers rent their own properties after default.

Even the renters who are up-to-date in their monthly rental payments are being forced out of their homes without them knowing that the house they are occupying have gone into foreclosure.

But the two housing financing companies continue their efforts in preventing such evictions. In fact, around mid-January, Fannie has suspended 20,000 foreclosures and about 6300 evictions. This suspension of eviction has been extended by both companies through February 28.

One of Fannie Mae’s other plans is to expand rental options after the home has defaulted and implement a new “rent-to-own mortgage program”. Also, Freddie Mac continues to come up with loan modifications for borrowers to keep ownership. Qualified renters will get a month-to-month lease.

The idea of letting foreclosed homeowners rent their home has initially been proposed by Dean Baker, the co-director of the Center of Economic and Policy Research. This proposal aims to help distressed homeowners without needing a big amount of taxpayer money and without creating a motivation for a borrower to go on default.

The said programs aim to lessen record defaults and ease the housing market downturn.

As home prices fall, foreclosures rise due to borrowers finding themselves owing more than what their property is worth; thus, making them ineligible for financing. In fact, about 16 percent of all mortgages or 8.1 million are estimated to be foreclosed properties in the next four years without adequate government or lender interventions.

What can aide in keeping local property values on the average and promote a faster recovery of the housing industry is keeping foreclosed homes occupied and in good condition.

The financial industry has proposed to the U.S. Department of Treasury to reduce mortgage rates as a way to prevent the increase in the number of foreclosed homes in the country.

Under the industry’s proposal, the department would lower the 30-year mortgage rate to as low as 4.5 percent. The proposed 30-year mortgage rate is a percent lower than the current 5.6 percent mortgage rate.

Financial Services Roundtable Vice President Scott Talbott said that this could be accomplished if the Treasury would acquire mortgage-backed securities offered by the Federal Home Loan Mortgage Corp. or Freddie Mac and Federal National Mortgage Association or Fannie Mae.

Details of the industry’s proposal have been sketchy, but Talbott expects that the plan designed to address foreclosure problem is similar to the program announced by the U.S. Federal Reserve to acquire mortgage-backed securities for as much as $500 billion from Freddie Mac and Fannie Mae.
The Federal Reserve’s announcement has caused mortgage rates to drop drastically. It is expected that additional buying of mortgage-backed securities could further push the mortgage rates down. It will also allow both Freddie Mac and Fannie Mae to buy or back additional home loans that will eventually led to eliminating the foreclosure problem.

Both government –sponsored enterprises, which were taken over by federal regulators last September, guarantee or own nearly 50 percent of the country’s $11.5 trillion home loan debt.
Meanwhile, the Treasury is considering the proposal as a way to reduce the number of foreclosed properties. It could incorporate the proposal on the second financial rescue fund request of $350 billion.

However, Treasury’s Brooklyn McLaughlin refuses to comment on speculations about possible actions the agency may undertake to address the foreclosure problem.

Some members of Congress has criticized Treasury Secretary Henry Paulson for using the almost $700 billion bailout fund to support the banking industry, and doing nothing to help homeowners who are facing foreclosure.

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