Amidst foreclosures, the Obama government puts housing rescue plan in place

Posted on August 12, 2009
Filed Under Foreclosure Crisis | 1 Comment

The American economy is going through one of its most challenging phases what with unemployment at its peak and the real estate in shambles. Foreclosures are at an all time high. President Obama has put a housing rescue plan in place. This plan is expected to help nine million house owners and induce the much needed stability into the housing market.

Now the question that arises is if the plan has had the necessary impact. For starters, the plan has been slow in taking effect. It hardly seems that the plan will be able to make 4 million modifications in mortgage payments and five million loan refinances. The impact has been slow to start with.

Law makers, government officials and activist bodies are now urging mortgage companies to hasten matters. Treasury Secretary Timothy Geithner says that things have to proceed at a faster pace. Till now 55,000 people have got refinanced loans. Only 200,000 have been put on loan modification trial, of the 370,000 who were assured of loan modification. There is a difference between the two. Refinancing happens when the lender enters into a new contract with the borrower. In a loan modification, there are changes in the existing contract. Either the interest rate is lowered or the term extended from 30 years to 40.

The loan modification plan has been progressing very slowly. The reason is loan servicers have not been properly trained to do loan modification. The companies know how to collect payments from borrowers, even those who have defaulted on payments. But President Obama’s new administration plan calls for writing the mortgage plan all over again. Besides training employees, computer systems have to be reworked which entails spending more time with borrowers.

The Government Accountability Office says that the initial assumption has been very optimistic. The Treasury Department had initially thought that 65 percent people who are late on payments will sign on the new mortgage contract. However, it has been noticed that only 50 per cent people will renew the contract.
There are other reasons for the slow progress of the program. Initially it was decided to help borrowers who owe five per cent more than what their homes are worth. That means people in southern California and Las Vegas have been left out of the program. Here prices have plummeted by 50 per cent. The Obama administration, however, is not planning any major change.

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