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Anti-Foreclosure Homes Plan: Benefits Outweigh Limitations

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By : John Cutts    99 or more times read
President Barack Obama announced his anti-foreclosure homes plan in Mesa, Arizona on February 18, 2009. The plan is designed to help distressed homeowners avoid losing their properties to foreclosure, put a stop to the declining home prices and eventually strengthen the housing market.

Millions of Americans are struggling to pay their monthly mortgages which increase to almost half of their monthly income. Majority of distressed homeowners are currently in a financial quagmire because they took out adjustable-rate loans which they could hardly afford to pay.

Because of these, the number of homeowners who lost their properties to foreclosure shot up rapidly and brought an encompassing and horrendous damage to the housing market and the economy.

Obama’s anti-foreclosure homes plan aims to reduce struggling homeowners’ monthly mortgage payments to not lower than 31 percent and not over 38 percent of their pre-tax income.

The anti-foreclosure homes plan works by appealing to lenders’ self interest. The U.S. government has agreed to subsidize a portion of the loss that mortgage lenders will incur if they modify loans to enable homeowners to pay their monthly mortgages at lower interest rates.

Additionally, mortgage lenders would be eligible for cash incentives and other government payments if they decide to make some adjustments on interest rates to ease homeowners’ burden of paying high monthly mortgage loans.

The whole idea of the anti-foreclosure homes plan is to lower monthly mortgage payments to allow homeowners to remain in their properties and prevent the increasing number of foreclosed properties from destroying neighborhoods and communities.

On their part, mortgage lenders would prefer to avoid foreclosure homes because it would costs them a lot if they foreclosed on a property than work out an amicable loan term with the distressed borrower.

However, just like any other government programs, Obama’s anti-foreclosure homes program has its limitations. The plan will not totally eradicate foreclosures but rather make concessions on mortgages with predatory terms.

Also, the focus of the plan’s incentives is mainstream loans and does not cover subprime loans packaged and sold as mortgage-backed loans.

However, Obama proposes to overcome limitations by providing consumer relief under a bankruptcy law. Under the program, bankruptcy judges would have the authority to modify loans in cases that mortgage lenders failed or refused to work out loans for homeowners who want to save their properties from foreclosures.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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