Unemployed Homeowners Facing Foreclosure Left High and Dry
Unemployed homeowners facing foreclosure have been left out in the cold with the government's foreclosure prevention program. Since unemployment insurance benefits don't provide enough income to cover most mortgage payments and many unemployed homeowners don't qualify for mortgage modifications, many find themselves facing imminent foreclosure with absolutely no or very little negotiating leverage with mortgage servicers.
Rep. Barney Frank hopes to change those dynamics by promoting a plan that would use some of the interest the government collects from the financial industry bailout to grant unemployed homeowners facing foreclosure low-interest loans to help them keep their home.
How The Program Would Work
The government would use some of the interest they collect from payments on the $700 billion Wall Street bailout to give unemployed homeowners low-interest loans for a period of 12 to 24 months. Homeowners facing foreclosure because of unemployment would be eligible; but they would need to demonstrate that there is a high likelihood of them securing a new job that would earn enough money to repay the loan.
Possible Problems With This Program
As I always say, the devil is in the details. How much interest would these homeowners facing foreclosure pay? Would their credit history and score become a factor in determining their eligibility for this program? If so, we could find that very few homeowners facing foreclosure would even qualify for this program.
People facing foreclosure and job loss often take a credit score hit because they simply can't pay their bills. Late payments reported on their credit report can kill their score. Just as the mortgage modification programs have missed the mark, this emergency loan program for unemployed homeowners could also end up not reaching enough homeowners facing foreclosure to have any real impact on the crisis.
Another issue is that once the homeowner is able to secure new employment, they may not earn enough money to repay the loan AND their mortgage. Let's think about this clearly, most homeowners are already stretched thin, even with a full-time job many homeowners are struggling to avoid foreclosure because they bought too much house.
This is a reality that was created during the housing boom when everyone believed that their home would appreciate by 200% within a few months. Before we approve any legislation to provide emergency loans to homeowners facing foreclosure, we need to make sure that we are offering a long-term solution not a short-term patch that will only serve to exasperate the homeowner's financial problems in the future.
Any program that's developed must truly benefit the homeowner facing foreclosure not just the mortgage lenders who are suffering because their revenue streams have dried up. If homeowners receive loans to pay their mortgages while they're unemployed, mortgage companies benefit by saving their income stream, shouldn't they be responsible for repaying part of that loan or absorbing some of the cost if the homeowner is unable to repay it in the future?