Shelli Dore’s Real Estate Blog

Posts Tagged ‘lenders

Aggressive steps readied to fight foreclosures – The Denver Post.

By Renae Merle and Dina ElBoghdady
The Washington Post

WASHINGTON — The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be their unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is to announce today, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more recent defaults reflect the country’s economic downturn and the inability of jobless borrowers to keep paying.

The administration’s new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of these distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.

The problem of “underwater” borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Foreclosure relief

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

The measures have been in the works for weeks, but President Barack Obama is finally to release the details days after his watershed victory on health care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed — concerns that are paramount for many Americans.

In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made.

Financial incentives

The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower’s mortgage.

Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.

Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.

Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled homebuyers to put little or no money down, and home equity lines of credit. Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can’t qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.

Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

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Michael Hudson, 04.08.09, 12:00 AM EDT

These days, some drivers are sporting bumper stickers that say: "Honk if you’re paying my mortgage." CNBC on-air reporter Rick Santelli sparked a firestorm by calling people struggling to keep up with their mortgages "losers."

As federal policymakers have moved to provide assistance to borrowers who are in danger of losing their homes, these affronts–and other blame-the-borrower rhetoric–are on the rise. Some commentators are publicizing the fiction that it was greedy borrowers who brought down our economy by buying homes they couldn’t afford…

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