US President Barack Obama has unveiled his strategy to put a stop on foreclosures that hinder the country’s economic recovery. His plan includes government-supported refinancing arrangements that will let about 9 million distressed homeowners reduce their mortgage loan payments and avoid foreclosure.
However, the president did not go into details on how his administration will carry out its refinancing program to help owners of distressed properties.
Refinancing is one of the key elements in Obama’s foreclosure abatement program. According to initial details provided on the program, those eligible for refinancing are borrowers whose loans are guaranteed or owned by Federal Home Loan Mortgage Corp. and Federal National Mortgage Association.
Homeowners who owe mortgages that are more than the market value of their properties are also entitled to avail of the refinancing scheme to protect their properties from foreclosures.
Moody's Economy.com data showed that borrowers whose mortgages are more than 80 percent of the current market value of their distressed properties are having a hard time getting a refinancing deal.
Currently, about 12 million homeowners or one in every seven households have mortgages that surpassed the total market value of their properties, a twofold increase from the nearly 6.6 million homeowners who were in the same precarious situation in 2007.
Meanwhile, the plan to reduce the number of foreclosed homes also includes an incentive to motivate mortgage services to help qualified homeowners to modify their loans. Mortgage servicers collect fees for delinquent and refinanced mortgages.
Under the plan, mortgage services will receive $1,000 for every mortgage loan they have modified. Additionally, they will also receive $1,000 annually for three consecutive years provided that eligible homeowners remain current on their mortgage payments.
Incentives are also offered to homeowners to help them pay their mortgages and avoid foreclosure. Those who continue to stay on their homes and are updated on their monthly loan payments will get as much as $1,000 balance reduction annually for five consecutive years. This incentive will help homeowners reduce their mortgage loan principal.
The Obama Administration has promised to provide more details about the foreclosure prevention plan on March 4, 2009.
For the meantime, troubled homeowners are urged to consult their mortgage lenders to determine if they are eligible for the refinancing program under the foreclosure prevention plan.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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