Short Sale, Foreclosure and Strategic Default

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Friday, November 7, 2008

Loan Modification - U.S. considering new foreclosure prevention Program

Potential foreclosure plan still being debated - Oct. 30, 2008
NEW YORK (CNNMoney.com) -- The government is expected to announce soon that it will devote up to $50 billion to directly address the source of the financial crisis: bad mortgages and millions of homeowners at risk of foreclosure.

White House spokesman Tony Fratto said on Thursday that "no decisions" have been made on "a number of housing proposals" that the administration has been reviewing "for some time."

But three administration officials indicated to CNN that the new program would be designed to prevent foreclosures by having lenders reduce delinquent borrowers' mortgage payments to affordable levels. In exchange the government would guarantee some percentage of each loan to backstop lenders if borrowers re-default on modified mortgages.

The plan could help up to 3 million homeowners, although that number is not firm, according to the administration sources.

If it comes to fruition, the government's new loan program could trump the efforts of the Hope for Homeowners program put into place on Oct. 1 by the Federal Housing Administration.

Lawmakers spent months fighting over the legislation that created the FHA program before enacting it in July. Lenders may be more likely to participate in the latest government plan if it imposes less stringent requirements.

The Hope for Homeowners program offers full government backing for lenders that agree to write down a mortgage to 90% of a home's appraised value. But the loss to lenders can be greater than 10% because many troubled homeowners are also "under water" because of falling home prices - meaning they owe more on their home than its current market value. So to participate in Hope for Homeowners, lenders in many cases would have to lock in a sizeable loss.

The plan being considered likely would not require such a strict writedown. Instead, it might require that the new payment for the borrower be affordable.


For more information on California Loan Modification

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