The Obama Government Aggressively Responding to the Foreclosure Crisis

May 27th, 2009

The Obama government is aggressively responding to the foreclosure crisis. It latest plan is named Making Home Affordable. This is the most comprehensive measure that has so far been taken.

This raises some questions about the previous plans and whether the foreclosure victims are still making use of them. There is not much action in the Hope for Homeowners programme and perhaps only one borrower has been able to satisfactorily rework through it. Programmes run by the Department of Veterans Affairs are giving relief to some.

The Making Home Affordable has two segments – loan refinancing and loan modification. Loan refinancing is for those who are current on their mortgage payments and can now refinance into a new loan with lower interest rates. Loan modifications are for those who are about to lose their houses to foreclosure.

For those who want to refinance there must be a minimum of 20% on the equity of the house. But the falling real estate has wiped out most of the equity. The equity is the value left over after deducting the loan amount.The refinancing plan by the Obama government helps those whose loans are nearly the same but slightly less than the current value of the house. It will not help those who have gone underwater with the loan amount being much more than the market value of the property. For refinancing the amount that is owed has to hover between 80% and 105% of the value of the house. Also the loan must be owned or otherwise guaranteed by Fannie Mae and Freddie Mac. The third condition is that the borrower has to be an occupant of the house with a good credit record and sufficient income to be able to continue with the new payment schedule.

The refinance will not reduce the amount the borrower owes to the lender but it will reduce the interest on that amount. This will bring down the amount that is remitted each month.

The loan modification plan will help those who are at immediate risk of losing their homes to foreclosure. They are either defaulter or about to be so. This loan modification facility is available even if the loans are not under the umbrella of Fannie Mae or Freddie Mac. Here the condition is that the servicers must have given their willingness to participate in the measure in writing. The credit history or the underwater factor is of no consequence in this modification programme. Even second mortgages are considered to be eligible. In second mortgages no down payments were made.