Archive for the 'Foreclosure Crisis' Category

U.S. President Barack Obama has released details of his foreclosure prevention plan which include reducing mortgage loan payments for about 9 million distressed homeowners and extending the role of Federal Home Loan Mortgage Corp. and Federal National Mortgage Association in trimming the number of foreclosed homes.

The president has committed to spend $275 billion for a program that will help nearly 5 million owners of distressed properties refinance their mortgage loans guaranteed or owned by Freddie Mac and Fannie Mae.

In his speech delivered in Mesa, Arizona, Obama said that the Department of Treasury will purchase at least $200 billion preferred stock in both government-sponsored enterprises.

Obama believed that lowering the foreclosure rate will stabilize housing prices and provide hope to families on the brink of financial ruin.

Meanwhile, Obama will support the proposal to revamp bankruptcy rules to allow U.S. judges to lower mortgage loans on principal residences to average market value, provided that homeowners make payments under a court-approved plan.

Under the Obama foreclosure prevention program, the president plans to use $75 billion from the almost $700 billion bailout fund to share the cost of reductions that mortgage lenders will make in interest of loan payments. It is expected that lenders will reduce monthly mortgage payments to allow borrowers to pay not over 38 percent of their pre-tax income.

The Treasury Department will help shoulder the costs lenders would incur when they cut down monthly payments to allow further reduction of 31 percent. The agency will do this by absolving a part of the mortgage balance of borrowers to help them avoid foreclosure.

The program is expected to help about 4 million owners of distressed properties and stabilize the average home market value against a price decrease of as much as $6,000.

Meanwhile, mortgage servicers will receive $1,000 for every loan that they have modified. They will also receive up to $1,000 for the three years that a borrower remains current.

At the same time, homeowners who remain current on their mortgage loans will receive $1,000 per year for five years. The cash incentive will be credited to the borrower’s principal balance to reduce his loan and help him avoid foreclosures.

Finally, the Treasury will formulate guidelines for the home loan modifications which would be applied to the foreclosure prevention program of the Obama Administration.

President Obama in Phoenix, AZ today unveiled his administration’s latest attempt to help save millions of Americans from possible foreclosure. The Homeowner Stability Initiative will provide up to $75 Billion dollars in aid to struggling homeowners; those who are facing foreclosure and those who also are “upside down” on their home loans. This new initiative is expected to help as many as 9 million homeowners and will be ready to start helping homeowners as soon as March 4, 2009.

Many economists have identified real estate as one of the driving factors behind the current economic crisis that has not only affected the United States, but almost every other industrialized country. Home prices have been in a free fall, with some areas experiencing close to a 50% drop in home prices over the past 2 years with no end in sight. Add to that a large number of adjustable rate mortgages that have come up for adjustment in interest rates and payments and you have a recipe for disaster. As a result many homeowners have found themselves owing more than their home is worth, or unable to make their housing payments because of the increase in payment, or because of the loss of income.

One of the highlights of the new plan being released on Wednesday is that the government would work with lenders to provide them with incentives to cut monthly mortgage payments. Under the proposal, no more than 31% of a borrower’s income could be used for housing payments. This part of the overall initiative is expected to help an estimated 5 million borrowers who may be facing immediate or near-term foreclosure.

Another 4 million homeowners are expected to benefit those who are paying for houses that are worth less than the mortgage, the so-called “under water” scenario. Under this program Fannie Mae and Freddie Mac, the quasi-government lending institutions that have had close to $200 billion pumped into to help absorb some of the losses, will work with homeowners to modify the loans to reflect the homes current value, the government will subsidize the loss resulting from the modification. The plan itself has provisions for up to a $6,000 buffer in the loss of value of a home.

Recognizing that housing was a key component to the current economic crisis, President Obama is also looking for it to be one of the factors that helps drive recovery. Under the new initiative the government will work to extend home loans available and affordable through a multitude of programs and means – including lowering interest rates, extending loans to more individuals, and working directly with lenders to help unfreeze some of the credit markets.

Whether this plan provides temporary relief or is a long-term solution remains to be seen. Supporters and critics of the plan both point out that this initiative can only do so much – and those who have bought more house than they can possibly afford may still not be able to keep their house even after modifications to original loan.

While this initiative may not help every struggling homeowner, supporters point out that one of the key features of the program is how encompassing it is. Instead of focusing on one type of homeowner it is throwing a wide net to help those in various situations. Even people who are not in immediate danger of losing their home may ultimately benefit under the plan by being able to negotiate lower interest rates or take advantage of the buffer against falling home prices.

Amid a deepening recession, and just one day following the signing of a massive stimulus package, many people see this program as a desperately needed lifetime to many borrowers who have faced difficulty getting their mortgages adjusted as banks and lenders froze most of their credit activities. It is hopes with government incentives and programs in place lenders will be willing to take on more risk and work with homeowners instead of pursuing more foreclosures, which has the ultimate affect of driving remaining home prices even further down.

Read the Full Plan Annouced By the President Obama

Last Tuesday, a Financial Stability Plan has been outlined by Treasury Secretary Timothy Geithner that aims to distribute as much as $2 trillion of private and public funds to the crippling financial system. The plan will be financed within a complex combination of a balance sheet extension of the Fed, private capital and federal tax dollars. Basically the central bank will produce more money in order to finance business and consumer lending and slow down home foreclosures. The plan has four focal points to strengthen financial markets:

Gauging the strength of banks

The government will assess which of the biggest banks in the country will most likely require more capital and which banks are well enough to lend and even endure a worse downturn than projected. Banks who have more than $100 billion in assets will go through a mandatory stress test to determine their balance sheets’ strength. It would involve a solid look at the strength of earnings, quality of assets, strength of present capital, as well as the strength of the management.

Funding for troubled assets

According to Geithner, the Federal Reserve, together with FDIC will team up with the private sector in order to form a market to purchase bad assets, most of which are complex securities backed up by a collection of mortgages, foreclosures and other different kinds of loans. Offering the financing that private markets cannot currently provide will help open a market for housing-related assets and prevent foreclosures that are at the heart of the crisis.

Lending kick-off

The government pledges as much as $1 trillion to lubricate the market for business and consumer lending, which increases on a $200 billion plan the Federal Reserve is getting ready to launch.

The money would supply financing to private investors to purchase securities funded by auto loans, credit card debt, student loans, and housing and commercial mortgages. New banks can get new money to loan if these can sell their loans to a strong secondary market.

Relief from foreclosure

The Treasury Secretary has also promised to provide assistance to homeowners by decreasing mortgage rates and payments to deal with the foreclosure crisis.

Many believe that the Financial Stability Plan should be assembled quickly as the foreclosure problem deepens. John Taylor of the National Community Reinvestment Coalition believes that the foreclosure crisis is the source of the economic recession and keeps on contributing stress to the economy. The administration should move quickly to put an end to the foreclosure crisis.

A surprising increase in contract signing to purchase repossessed homes occurred last December indicating housing demand. The pending home resale index showed a 6.3 increase to 87.7, the first rising since August. But other sources say that the inventory of foreclosed homes actually caused a $3 trillion lost of home value in 2008.

Barack Obama, who is just a few days away from being inaugurated as the 44th and the first African-American U.S. president, is facing his first big test in the Senate. Democratic and Republican senators have been debating whether to give him the second $350 billion of the Troubled Asset Relief Program fund for his own foreclosure prevention program.

More empty space is expected this year as more jobs are lost and businesses become unstable. Rental income and property values decline. In fact, 2009 is predicted to be the worst year of the commercial real estate market.

Foreclosures have once again brought a huge impact on housing markets. Out of twenty cities in October 2007, 14 have shown declines in home prices. These declines have already reached up to 18% as compared to records from the previous year. According to David Blitzer, chair of Index Committee at Standard & Poor’s, this record was last exhibit in March of 2004.

Foreclosure filings have not stopped despite the introduction of loan modification programs by Citigroup, Bank of America Corp., JP Morgan Chase, the Federal Housing Administration (FHA), by the Federal Deposit and Insurance Corp. (FDIC) at IndyMac Federal Bank and by several other mortgage lenders.

Many experts believe that the key to solving the deepening economic problem is to stabilize the housing market and finally put an end to increasing foreclosures.
The statement is easier said than done. Whittemore School of Business and Economics Professor Rose Gittell says that the housing crisis has created a vicious cycle that [...]

Foreclosure crisis has excessively expanded that even top banking regulator expressed concern about struggling homeowners who can no longer keep up with housing problems. Even FDIC Chair Sheila Bair claimed during a forum at Washington that the nation is way behind in dealing with this problem. Had her earlier warnings regarding making modifications on mortgages, she says the nation may not be experiencing the challenges it is experiencing today.