Massive Foreclosure Relief For Struggling Borrowers

July 24th, 2008

It took six months or haggling and debating before finally a massive foreclosure relief programme has taken off in the form of a housing bill. It awaits the final nod, however.

The bill has run into hundreds of pages replete with suggestions and modifications. It is all about $300 billion programme of HOPE for helping 400,000 house owners boiling in the foreclosure cauldron.

There are many conditions about ultimately who will qualify for this help. The question hangs about when finally HOPE will be up and about. Then how long will it run? What are the limitations and defects?

The fundamental idea of Congress is to save those who are at immediate risk from losing their houses to foreclosures but who could be able to avoid it if the mortgage principal and interest was considerably reduced.

The operation is basically voluntary – and that poses a big question mark on its efficacy. If the lenders feel that by opting for foreclosure they are likely to suffer greater loss then alone will they have the incentive to refinance. Otherwise why should they voluntarily suffer losses? It means that despite the bill, the lenders can opt for foreclosure if they want to.

According to the plan the lenders will have to waive a large chunk of the principal as well as penalty fees. The Federal Housing Administration, drawing from a special newly created fund that will come into force by this new legislation, will insure the new loans under the HOPE umbrella. 90% of the value of the house, as per current market value, will be insured. It will not be the original value of the house when the first loan was advanced. An insurance fee of 3% will be levied that will be paid from the proceeds of the refinancing. It will be expected of lenders to clear all impediments in the form of second liens and second mortgages. Then only can the HOPE plan proceed.

Borrowers must show that their present position does not allow them to continue with the term of the original loan. On the other hand they must also prove that they have the capacity to continue with the new arrangement. By the fresh agreement the capital will be reduced and the interest too will be for long term on a lower rate. The government must be satisfied that the borrower has not” intentionally defaulted” so as to qualify for the HOPE loan.