Vanilla Loans will Prevent Foreclosure Rerun

Posted on June 26, 2009
Filed Under Foreclosure Homes | 1 Comment

The Obama administration has rightly thought that the giving of ‘vanilla loans’ will prevent foreclosures for sale rerun in future. By it those who now contract mortgages will automatically get one such ‘vanilla’ loan like a conventional 30 year fixed rate mortgage – if however they do not opt for a riskier loan.

Obama is making plans for restructuring financial regulations with the focus being on giving protection to the borrowers and saving them from the risky complicated mortgages that have so far created this housing mess.

President Obama is however ready to combat opposition of this plan. In his radio talk he warned, “While I’m not spoiling for a fight, I’m ready for one.”

The administration wants to streamline the process of granting mortgages simple and free from abuse. For the brokers the plan hits out at the lucrative earnings they have been pocketing by peddling these risky loans.

The plan unveiled by Obama will thoroughly give the regulatory system a basic shake up. A Consumer Financial Protection Agency would be created to keep a hawk’s eye on the financial products meant for the consumer. The home loan process would be revamped from the start.

This is the latest step that the government is taking to tackle the debris left behind by the housing tsunami. In March the government set into motion a plan worth $50 billion to give incentives to the lending industry so that loans were modified and payments lowered.

But the scheme so far has been a slow starter. Many experts are saying that despite the incentives the lenders are still being difficult and not coming forth to change terms. Till the middle of June 50,000 borrowers enrolled for a trial month of three months according to the Treasury Department. Initially the government had hoped that this loan would benefit 4 million borrowers.

Government approved mortgages are not being liked by the mortgage lobby. It is being compared to paternalistic interference that will clamp down on the options that borrowers have before them when hunting for loans. This will make loans more difficult to avail of apart from being more expensive.

Guy Cecala of Inside Mortgage Finance (trade publication) dubbed the plan to be “un-American”. He opined that by it the mortgage market of the country would be heavily chained down by regulations similar to what has happen in many European countries like Germany and France.

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