Congressional Determination in Resolving Foreclosure

by Simon Lindsay on Foreclosure Help

A year of extra attention and effort failed the Congress in resolving the foreclosure crisis.

To date, there is one in every ten homeowners who is either late in their mortgage payments or is already facing foreclosure. This is the highest delinquency rate known. About 8 million homes were repossessed in just four years. That is why the Congress is now on a multi-pronged approach to address the foreclosure crisis.

In previous recessions, lenders have opted to decrease terms and extend payments than shoulder all foreclosure costs. But since the modern financing system is so complex, with the pooling of mortgages sold to tons of investors, renegotiation became more complicated.

The Congress is now proposing both “carrots” and “sticks”.

The “carrot” or incentive is the Troubled Asset Relief Program better known as TARP. It is a $700 billion financial relief that wishes to help the banks in loan modification. A part of it is proposed to standardized loan modification and compensating loan servicers with every modification.

It is also planned to regulate monthly dues at 31 percent of the homeowner’s income thereby extending mortgage up to 40 years. Loan servicers will also be protected from cases filed by investors accusing them of lowering their income.

TARP will also change the Hope for Homeowners program which basically guarantees $300 billion for the foreclosure troubled. Another $800 billion economic stimulus program wishes to give tax incentives for home buyers, tax credits to first timers and renters of vacant properties.

On the other hand, the “stick” proposal has become very controversial.

It involves the changing of the bankruptcy law, letting courts modify first mortgages on primary homes. Here, the borrower must talk to his lender 10 days before filing bankruptcy to give time for modifications. If no offer is done, a judge will adjust the balance to fair market value, decrease interest and extend to a five-year payment plan.

Of course, there is still no guarantee that distressed homeowners will dodge foreclosure considering the present market and economic conditions.