After more than 6 months of being implemented, the Obama administrations effort to prevent foreclosures has been under very outspoken criticism due to its lack of effectiveness to help borrowers stay in their homes. Today the Obama administration is announcing a revised plan that would reduce the amount some troubled borrowers currently owe on their home loans.
This new effort is designed to let people who owe more on their mortgages than what their properties are worth will now get new loans backed by the Federal Housing Administration.
The $14 billion needed to fund this new plan will be coming out of the administration's existing $75 billion foreclosure-prevention program. Despite this new effort there may still be additional criticism since there is concern that the government may be carrying too much risk by taking on bad loans made during the housing boom.
The existing mortgage companies holding these mortgage loans will receive incentives from the government to lower their principal balances. Also the program will help unemployed homeowners continue to make payments towards their mortgages.
It should be noted that the Obama administration has cautioned that this new plan will not stop all foreclosures or assist all homeowners who are in trouble.
The new plan is also not intended to provide shelter to investors and speculators or those living in million dollar homes or people who default on second homes.
Sadly, there are still going to be people who just cannot afford to stay in their homes because they bought more than they could actually afford.
It's estimated that the plan could help between 1 million and 1.5 million homeowners avoid foreclosure. There are close to 4.5 million homeowners that are already in foreclosure proceedings or who are at least 90 days behind on their mortgages with an additional 10 million homeowners who are underwater on their mortgages and owe more than their homes are worth.
This latest effort may have a real impact on bringing the foreclosure crisis to a much faster end which the Obama administration would like for it to do.
Furthermore, mortgage companies who are currently participating in the administration's existing foreclosure prevention program will need to consider dramatic cuts in the amount borrowers now owe.
Also, for borrowers who have lost their jobs this plan will provide three to six months of temporary aid. In an effort to handle a problem that has blocked many loan modifications thus far there will be additional payments designed to give the banks an incentive to reduce payments or eliminate second mortgages such as home equity loans.
Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., who are the four biggest holders of second mortgages, have now joined the government's program to modify second mortgages.
Nearly one in every three homeowners with a mortgage is "under water" and for months critics have complained that the Obama administration has done very little until now to encourage banks to cut borrowers' principal balances on their primary loans. The hope is that once the new program is in place people will be getting help faster than before which will allow them to stay in their homes.