On February 18, 2009, President Barack Obama showed his administration’s commitment to boost the country’s economy and strengthen the housing market by announcing an economic stimulus package that includes a foreclosure prevention plan.
Everyone is hoping that Obama’s foreclosure prevention plan will be able to curtail the spread of foreclosure homes in the country. But as early as March of this year, doubts have surfaced whether Obama’s anti-foreclosure homes plan would succeed in California as nearly 30 percent of homeowners in the state owed more mortgages than the market value of their properties.
Most of these distressed homeowners owed mortgages the total amount of which exceeded the limit that the U.S. government established for a refinancing under the anti-foreclosure homes program.
The anti-foreclosure homes program allowed struggling homeowners who pay their monthly mortgages diligently to quality for new loans with affordable interest rates, for as high as 105 percent of the fair market value of their properties.
For example, a homeowner could qualify for a loan of $315,000 against his property worth $300,000.
However, most homeowners in California may not able to qualify for this anti-foreclosure homes program because they owe over 105 percent on their properties, according to Bankrate.com senior analyst Greg McBride.
In Inland Empire alone, homes have dropped their values more than 40 percent in 2008 and 50 percent of homeowners have mortgages that surpassed the market value of their properties.
Another feature of the anti-foreclosure homes plan is cash and fee incentives that the Obama Administration will give mortgage lenders to motivate them to modify loans of distressed homeowners to allow them to pay monthly mortgage payments of not more than 31 percent of their pre-tax incomes.
However, in order to avail of a loan modification, a distress homeowner should be financially capable of making payments which is hard to do if he had lost his job. And California is one of the states where unemployment rate is at its peak. The state’s 10.1 percent unemployment rate in January 2009 is way higher than the 7.6 percent rate nationwide.
Studies showed that unemployment is the main reason why prime borrowers fall behind their monthly payments, go into default and eventually become victims of the foreclosure crisis. And this bodes ill for Obama’s strategy to offer incentives to mortgage providers to modify loan terms to make them affordable to distressed Californian homeowners.
Author Resource:-
John Cutts has been educated in the finer points of the foreclosures market over 5 years. Read bank foreclosures news at BankForeclosuresSale.com - Your online source for foreclosures for sale.
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