How Will Obama Wants to limit Home Foreclosures

by admin ~ November 11th, 2008.

Given the severity of the housing crisis and its more significant role in the economy, foreclosure prevention will likely to be a priority for Barack Obama.  On the campaign trail, the president-elect proposed a 90-day moratorium on foreclosures, giving Bankruptcy Court judges the right to provide home loan modifications on primary residences, a $10 billion foreclosure-prevention fund and a mortgage tax credit of up to $800 a year for homeowners who don’t itemize their deductions.

Unlike his opponent, Sen. John McCain, he did not urge the government to buy up bad home loans and reduce them to the homes’ new values, putting taxpayers on the hook for the difference. But some of Obama’s proposed $10 billion fund would help homeowners who are facing foreclosure “through no fault of their own” by letting them refinance mortgages through the Federal Housing Administration, Fannie Mae or Freddie Mac.

What Obama accomplishes depends, in part, on what the Bush administration does about housing in its waning days.  This summer, Congress allocated up to $300 billion for the new Hope for Homeowners program, administered by the FHA. Under this plan, a lender submits a troubled mortgage for refinancing. A new, government-guaranteed mortgage is issued for 90 % of the home’s value. The lender writes off the difference between the old and new mortgage. The homeowner agrees to share the home’s future appreciation with the government, which shares its portion with the lender.  Originally, the government said the program, which started Oct. 1, would help 400,000 homeowners over three years. But the voluntary program is off to a slow start. In the first two weeks, just 42 applications were received. The FHA now says only 13,300 homeowners will be helped the first year.

News organizations have reported that the Treasury Department is considering new ways to help homeowners, including a proposal by the Federal Deposit Insurance Corp. similar to what it is doing to modify IndyMac home loans. The FDIC plan would use $50 billion from the $700 billion bailout bill to modify mortgages.  The Bush administration is also said to be considering a mortgage-industry proposal to split losses on modified mortgage loans with the government. Treasury has not confirmed these reports.

In recent weeks, some large lenders including Bank of America and JPMorgan Chase have announced their own mortgage-modification plans.  Rick Harper, director of housing at the Consumer Credit Counseling Service of San Francisco, says it’s becoming much easier for borrowers to get a mortgage loan modification.  “Across the board, it’s easier now than it was two years ago. If it makes sense financially today, we have a really good shot,” says Harper, who counsels struggling homeowners.  On Friday, Obama said it’s “absolutely critical that the Treasury work closely with the FDIC, HUD and other government agencies to use the substantial authority they already have to help families avoid foreclosure and stay in their homes.”  

Dean Baker, co-director of the Center for Economic and Policy Research, says the most expedient thing Obama could implement a change for the Bankruptcy laws to enable judges the power to modify mortgage loans on primary residence homes. These judges already can change the terms of other debts, including commercial loans and loans on 2nd homes.  “In terms of how do you make a difference quickly that lets people stay in their homes, nothing else even comes close,” Baker says > Read Complete Article

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