Foreclosure programs provide much-needed relief for troubled homeowners. They offer extension on loan terms, interest-rate reduction, and principle forbearance. With the economic depression showing little sign of abating, who would not want these?
The trouble with foreclosure plans is precisely that – everybody would want to have a bite of the cake. As more foreclosure prevention schemes come into being, the big dilemma is that there may be no way to distinguish those who need to have their loans readjusted from those who just want to avail of the benefits.
Both the Federal Housing Finance Agency (FHFA) and the Federal Deposit Insurance Corporation (FDIC) have proposed anti-foreclosure programs that allow mortgages to be modified. Both have also placed certain eligibility requirements for borrowers to avail of the benefits. For instance, the FHFA requires homeowners to be able to demonstrate a change in financial situation or some form of hardship.
However, these can be interpreted very broadly to mean a simple job change or more medical bills. While programs restrict eligibility, they will not stem foreclosures.
In fact, these programs may even incite homeowners to skip payments to qualify for a loan reduction. Though missed payments may make it difficult for homeowners to obtain future credit, it is a still tempting proposition especially to those who have little debt, or to those who have no plans in making future loans.
Presently, foreclosures are on the rise, with mortgage companies not knowing how to deal with the deteriorating houses.
Meanwhile, private citizens seem to have a better idea when it comes to solving the foreclosure problem. Barnes and McWhorter, for instance, buy packages of houses from lenders, and sell them to investors in smaller packages. The house is then sold for a slightly lower rate than the standard neighborhood rent.
With this scheme, houses are more easily sold and are saved from deteriorating. It would do well for the current administration to take a hint or two from the Detroit pair.
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HUD Fair Housing Equal Opportunity
