New Government Rules for Homeowners in Trouble?

The Obama administration announced new efforts to help the resolve the mortgage crisis. Under intense scrutiny for not doing enough to help homeowners who are ‘upside down’ in their homes or are unemployed, they hope this will help dig the nation out of it’s mortgage troubles.
The program is designed to help address the mounting problem of decreasing property values. The administration hopes that the banks holding the mortgages will work toward reducing the principal balance on mortgages that are higher than the market value on the home. The problem is that the banks are holding out.
The banks will now be required to takes steps to implement forbearances that would temporarily reduce or suspend mortgage payments for eligible homeowners for up to six months. After the forbearance period has passed, the homeowner then needs to wade the murky waters of a possible loan modifications.
“All the programs are really trying to facilitate what should be happening in the marketplace anyway,” said White House economic advisor, Diana Farrell. “It’s actually in the interest of lenders to reduce the loan balance because those will be sustainable, higher quality loans. Similarly, it’s in the interest of the borrowers to get into a loan that they can actually afford and sustain over time.”
This new expanded initiative is scheduled to begin this fall and the $75 million dollars will come from TARP (Troubled Asset Relief Program) funds.
Basic guidelines for principal reductions say that homeowners who owe more than 115% of their homes current value could be eligible for the principal reduction program, granting that they keep payments coming on time for 3 years. Homeowners with FHA mortgages, and a 500+ credit score are eligible for a principal reduction to no more than 97.5% of their home’s value and payment changes to equal less than 31% of their pre-tax monthly income.
Help for the unemployed comes in the way of forbearance programs, giving homeowners a 3-6 month reprieve from making their mortgage payments. The unemployed homeowner will also be evaluated for loan modifications after the forbearance period has passed.
In addition to the new measure to help homeowners stay in their homes, the Obama administration has doubled the incentive to servicers to complete a HAMP modification to $2,000 as well as relocation assistance funds to the homeowner up to $3,000.
The administration hopes these new incentives will help between 1-1.5 million homeowners avoid foreclosure, which is significantly higher than the 500,000 earlier estimated.
Let’s hope the measures will make a difference in helping to stabilize the housing market where we currently have over 20% of all mortgages past due and 1 in 4 owe more than their home is worth.

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