Foreclosure Relief Programme Kicks Off

October 6th, 2008

The much talked about foreclosure relief programmed has kicked off. Lenders are being advised to accept losses so as to help foreclosure victims to continue with monthly payments. About 400,000 borrowers who are in trouble will now be able to exchange their running mortgages to more affordable ones. However it is not the borrowers but the lenders who will take the decision of participating in this programme. It will mean that lenders will have to accept losses on the initial loan.

$300 billion is involved in these three year remedial measure that targets troubled foreclosure victims whose loan amount has become more than the current market value of the mortgaged property.

To me able to qualify for this benefit the borrowers will have to show that they are spending over 31% of their income on meeting mortgage dues. The loans that have been contracted in 2008 are excluded from this scheme. Only those completed on 1st January 2008 will be considered. The borrowers must have paid six months mortgage instalments to be eligible.

HUD secretary Steve Preston commented that for those house owners in trouble this seems to be the answer. Officials are still in the dark about the number of house owners who will most probably qualify. Tentatively the number is fixed at 400,000.

The programme has been named Hope for Homeowners. It was passed by the Congress last summer and was a part of a jumbo housing bill. It is one of the many efforts being initiated by the government to contain the foreclosure crisis.

Critics continue to be skeptical alleging that the government’s action is slow and full of shortcomings. They argue that if action had been taken earlier then the bailout of $700 billion would not have been required. Wells Fargo, Citigroup, JP Morgan Chase and Bank of America informed the lawmakers that they have been appointing extra workers to make the programme effective. The doubt however continues to remain how far the industry will come forward to embrace the plan. Those who had invested in mortgage securities would have to accept immediate losses. They could recoup only if the real estate prices started to move upward. To do so the modification plans that are being worked out will allow leverage to the industry to “share in future appreciation.”

According to recently submitted reports by bank and law enforcement officials about 80% of the borrowers have still not asked for protection against foreclosures.