Donovan Says Government Foreclosures Program Cannot Save All

by Simon Lindsay on Foreclosure Crisis

In a forum held at the Capital Community College in Hartford, Housing and Urban Development Secretary Shaun Donovan reiterated the reality that not all troubled homeowners will be saved by the government foreclosures program developed by the Obama administration.

The government foreclosures program has eligibility requirements that borrowers need to meet before they can avail of loan modification or loan refinancing schemes. Under the loan refinancing scheme, borrowers must be paying loans owned or guaranteed by Freddie Mac or Fannie Mae, must not have been over 30 days late in their payments within the last 12 months and their loans must be about the same or less than the market value of their homes.

Under the loan modification scheme, borrowers must be living in their homes; their loans must not be higher than $729,750; the loans must have been taken out before January 1, 2009; and must have valid reasons for struggling to pay the mortgage loan.

Donovan said some homeowners that do not qualify for the government foreclosures program should explore other options that do not bring them to foreclosure. It is not reported if Donovan mentioned short sales, but he referred to options that do not damage credit records, that allow borrowers to sell their houses more quickly, that prevent them from going into foreclosures and that allow them to have a fresh start.

The Association of Community Organizations for Reform Now and other advocacy groups have been campaigning for extensions of moratoriums on private lender and government foreclosures until the proposed reform on the authority of judges to order mortgage modification is resolved.

However, many other groups are opposing the bankruptcy reform proposal, saying that taxpayers should not bear the problems of homeowners who want to stay in homes they could not pay. They argue that delaying foreclosures and evictions would just delay the restoration of housing market stability.

In the Hartford forum, Donovan was accompanied by Senator Christopher Dodd. Donovan has been traveling to cities across the country to take a look at the impacts of foreclosures homes and how the government foreclosures program is being implemented.

Secretary Donovan and Senator Dodd are expected to also visit Bridgeport and New Haven, two cities contributing large numbers to total Connecticut foreclosures.

Donovan’s explanations on the government foreclosures program were intended to respond to both sides of the debate on the use of taxpayer money to save homeowners who are described by other groups as irresponsible or reckless borrowers who took out mortgage loans they cannot afford to pay.