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A Perspective on the Foreclosure Control Initiative

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By : John Cutts    99 or more times read
The foreclosure prevention plan introduced by President Barack Obama is a far cry from the Bush Administration’s anti-foreclosure program which was criticized for protecting banks and other financial institutions at the expense of homeowners who are in danger of losing their properties to foreclosures.

Obama has promised that his initiative will bring relief to the almost 9 million American owners of distressed properties by providing loan refinancing.

However, questions arise whether the administration’s foreclosure abatement initiative will be enough to rescue the falling home prices and revive the country’s ailing economy.

Under the initiative, the government will allocate as much as $75 billion, which will be taken from the financial bailout fund, to match the reductions mortgage lenders will make when they provide a low-interest rate refinancing deal to homeowners who have good credit but in danger of losing their properties to foreclosures.

It is expected that the loan modification scheme will help an estimated 4 million homeowners avoid foreclosure.

Majority of the funds from the $75 billion initiative will be used to provide incentives to mortgage lenders to encourage them to offer loan modifications to troubled homeowners and to subsidize the reduced interest rate to lower the monthly mortgage payment of borrowers by as much as 31 percent of their pretax income.

Aside from the incentives, Obama also offers his support for a law that will allow bankruptcy judges to modify a distressed homeowner’s loan in the event that the latter failed to get a good deal from his lender.

Furthermore, the foreclosure prevention plan will benefit homeowners who are current on their mortgage payments but are struggling to come up with the required amount monthly. The plan will help them refinance their loans at lower interest rates.

Meanwhile, loans owned or guaranteed by Federal National Mortgage Association and Federal Home Loan Mortgage Corp. are also entitled for refinancing even though holders of the mortgage have paid only not more than twenty percent equity on their properties.

The initiative is expected to help about 5 million owners of distressed properties to swap their existing mortgages for lower rate loans.

By lowering interest rates and making mortgages more affordable to struggling homeowners, the initiative could somehow lessen the impact of foreclosures. However, Obama should still seek to help borrowers who cannot honor their mortgage obligations for reasons that are beyond their control, such as loss of job and illness.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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