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Direct Relief For Homeowners May Be On The Way

Posted By admin || 3-Nov-2008

According to an article in the Star-Telegram officials from the Treasury and FDIC are currently negotiating a plan that would get the U.S. government to guarantee the mortgages of nearly 3 million distressed homeowners facing imminent foreclosure . The plan, if approved would be the first of its kind to offer relief directly to homeowners and could cost as much as $50 billion. Under the proposed program, homeowners' monthly mortgage payments would be reduced to an affordable level. The reduced mortgage payments would be achieved by lowering interest rates, cutting the amount of principal owed or offering an extended payment period that could stretch beyond 30 years. For mortgage lenders the program would be voluntary. To entice mortgage lenders, the government would guarantee that lenders would be compensated for any losses they suffer if borrowers default after the loans are reconfigured.

This plan sounds like a good first step; but we need to be careful that when mortgage lenders reconfigure the loans the homeowner is given credit counseling so that he/she does not fall behind again. Theoretically, if the government guarantees compensation for losses on reconfigured loans this could encourage lenders to implement reconfigured loans in way that is still not affordable. The government should offer some type of incentive that will encourage lenders to help borrowers over the long-term; such as offering tax breaks on each borrower who stays in his/her home five years after the loan is reconfigured.

Categories: Foreclosures
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