Insight on New Rescue Plan to Help Homeowners Avoid Foreclosures

by on Stop Foreclosures

The long-awaited foreclosure prevention plan of President Barack Obama has produced conflicting reactions because of its focus on helping only homeowners who are at risk of defaulting on their mortgage payments. Many questioned why help should not be provided also to homeowners who are in some form of foreclosure.

Obama’s $75 billion plan intended to bring down the number of foreclosed homes in the country includes refinancing arrangements that will enable about 9 million borrowers to lower their mortgage payments and incentives of $1,500 to distressed homeowners and $500 to mortgage lenders provided loans have been modified before borrowers default.

In line with the plan, the Department of Treasury has pledged as much as $200 billion to government-supported mortgage providers Federal National Mortgage Association and Federal Home Loan Mortgage Corp. in an attempt to maintain low mortgage rates.

However, some Republican lawmakers questioned the fairness of the foreclosure prevention plan.
In a letter to Obama, Republican House Representatives John Boehner and Eric Cantor questioned the president how his foreclosure prevention plan can help more than 90 percent of borrowers who purchased only properties that they could afford to pay regularly.

This question is echoed by some homeowners who deemed it unfair that the foreclosure prevention plan will help only those on the edge of foreclosure, those who are paying their mortgages but having difficulty of doing it monthly and those who are at risk of defaulting.

Some homeowners who are current on their mortgage payments believed that they should also be given a chance to reduce their loan payments.

On the other hand, Moody’s economist Mark Zandi said that the impact of the housing recovery program on foreclosures will not be that big but it will somehow slow down the increase in the number of repossessed homes.

Another controversial element of the housing recovery plan is the Obama Administration’s support of the proposal to allow bankruptcy judges to reduce interest rates and extend the period of repayment on home mortgages.

Also, the proposal would allow bankruptcy judges to lower the principal mortgage owed to the fair market value of the property.

Majority of financial services institutions have opposed the proposal arguing that homeowners of properties with declining value need a lenient law even if they could afford to pay their mortgages.

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