A new program by the US government is underway to tackle the two main root causes of the current financial crisis, which are basically a historical level of delinquencies in mortgage payments and millions of impending foreclosure homes. Officials are saying that this new mortgage program can achieve better results than the current Hope for Homeowners program that Congress had initiated last October 1, 2008 through the Federal Housing Administration.
According to government spokespersons, several proposals have been given to the administration for review but no definite decisions have been made. However, this new program may well be on its way to implementation as it has the potential to help 3 million homeowners facing foreclosures.
In this new program, participating lenders would need to restructure the delinquent borrower’s mortgage scheme down to affordable levels. As an assurance to lenders participating in this new program, the government will act as a guarantor to certain percentages of the loans of these borrowers facing foreclosures. In this case, the government will have to pay the lender these loan percentages should borrowers once again falls short in their mortgage payments.
The current Hope for Homeowners program requires lenders to issue a strict writedown on mortgages, which the FHA has set to 90% of the appraised value for these foreclosed homes. Aside from the automatic 10% loss that lenders will acquire in this program, losses incurred by lenders may be compounded with the current devaluation of housing prices. These declines in prices have resulted to a staggering increase of underwater homeowners, or those who owes a bigger mortgage balance that what the house is currently worth.
Lenders may be more attracted to this new mortgage plan since no writedowns are required. With these less imposing requirements, lenders can restructure these mortgages for foreclosure homes by offering a reduced interest rate for a pre-determined length of time. Another option would be to offer extensions on loan terms. Either way, hope is on the rise for beleaguered homeowners.
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