Pressure on Lenders to Help Stop Foreclosures- By: John Cutts
Finally, most of the details of President Barack Obamaís foreclosure plan, now called Homeowner Affordability and Stability Plan, have been released. One of the planís big distinctions from foreclosure programs carried out during the previous administration is its pressure on mortgage lenders to offer as many loan modifications as they can to save as many troubled homeowners as they can from foreclosure.
Under the previous administration, the mortgage industry was called upon to work out loan restructurings with borrowers in danger of foreclosure. But the industry failed to respond to the call. More foreclosures occurred and more homeowners lost their homes.
The Obama administration seek to arrest the continuing foreclosures by helping troubled homeowners avoid going into foreclosure. It recognizes the reality that helping responsible homeowners will rebuild the housing market and ultimately contribute to economic recovery. It also believes that helping American homeowners is as important to economic rehabilitation as helping financial corporations and other large job-creating enterprises.
The neighborhoods of Lancaster and Plano in North Texas are just two of thousands of neighborhoods devastated by continuing foreclosures as the recession worsens. These are the neighborhoods that would be rehabilitated by the foreclosure program.
Obamaís foreclosure plan will be funded from the remaining $350 billion bailout fund approved by Congress in 2008. Up to $75 billion will be spent for anti-foreclosure initiatives and $200 billion will be spent to strengthen the finances of government-controlled mortgage firms Fannie Mae and Freddie Mac.
The additional funding for the two mortgage giants will enable them to acquire and sell mortgage securities and thereby energize both the mortgage industry and the housing market.
To encourage more mortgage lenders to participate in the foreclosure plan, the government will offer a cash incentive of $1,000 to lenders for each loan modification worked out. It will also offer additional cash incentives for up to three years for every borrower that will sustain payments.
Lenders will also receive help when they reduce the monthly payments of troubled borrowers to 31 percent of their gross monthly income. The government will pay part of the reductions that they will offer to deserving borrowers. For eligible borrowers that the lenders will help through the reduction of their remaining principal balance, the Treasury will also fund part of the cost.
As lenders are given incentives, borrowers who faithfully keep up with their mortgage payments will also be rewarded with cash incentives that can be used to reduce their remaining principal balance.
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John Cutts has been educated in the finer points of the foreclosure market over 5 years.