Foreclosure Victims Lose Interest in Government Relief Plans

Posted on November 7, 2008
Filed Under Foreclosure Homes | 1 Comment

Because of limitations in the Hope for Homeowners plans the foreclosure victims have lost interest in government relief plans. Hope for Homeowners program, launched by the federal government on 1st October, was supposed to help roughly 400,000 borrowers who were struggling to avert foreclosures for the next three years. According to the Federal Housing Administration roughly 13,300 will be helped in the first year. At a conference an FHA official said that according to a report by a lender 1,200 borrowers would be eligible for the program out of 23,000.

Borrowers who are behind on their payments are helped by Hope for Homeowners to refinance into more affordable loans insured by FHA. Basically the loan balance and interest was lowered to bring down the monthly payment by 30% and to restore the borrowers equity in the home. But according to industry and government sources a drawback is seen in the FHA plan by lenders and mortgage investors. Many interested parties are playing games by waiting and hoping that better foreclosure–prevention options like the plan by Federal Deposit Insurance might be more attractive. Reactions show that Hope for Homeowners is just another government and industry effort which has failed to stem the rising tide of foreclosures. The Hope for Homeowners has its implications because the foreclosure-prevention proposals are under discussion by the Treasury Department and the White House. A proposal by the mortgage industry to split loan losses with the government, which will cost taxpayers about $50billion, is also being taken into consideration by the Bush government. A major downside to the Hope for Homeowners program is that lenders who originated the troubled loans and the mortgage securities who now own most of them must accept a big loss on each loss refinanced through the program. If the owner of the existing loan agrees to accept as repayment the proceeds of the borrower’s replacement loan, which isn’t to exceed 90% of the revised value of the home then only a borrower can participate in this. But due to a sharp decline in the home prices the homebuyers owe much more than their properties are worth. Thus the lenders would have to forsake a substantial portion of the amounts currently owed to them. The program also requires the borrower to pay an upfront FHA insurance premium of 30%. The applicants would have to borrow it as a part of a new loan because they probably wont have the funds at hand to pay that fee.

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