Homeowners in Foreclosure & 700 Billion Dollar Economic stabilization package

13 Feb 2010

We all know about the 700 Billion Dollar Economic Stabilization Package or how is commonly called: The Big Bailout Bill of Wall Street financial institutions that was just passed by Congress last week, and many homeowners wonder if it will include any extra help for the regular, middle class homeowners who are facing the possibility of foreclosure.

The government plan to rescue the financial system was passed by the House for a vote after it passed the Senate Wednesday night. The Bill would allow the Treasury to buy up seven hundred billion of bad assets, most of which are backed by mortgages from banks, in an effort to clean up their balance sheets so that they can resume lending.

Experts and economists say that the U.S. credit crisis will not be resolved until the housing market smoothes out, foreclosures slow down and home prices stop falling. But home prices are still declining, so in order to help the economy, the issue of homeowners facing the possibility of foreclosure will have to be resolved first.

We already know that the seven billion bailout legislation calls for the Secretary of Treasury to execute a plan to aim foreclosures by working with lenders to modify loans, and here is when things get complicated, since there is a new housing rescue law that was approved in July and is bound to work in a similar platform allowing borrowers who can not meet their current mortgage terms to refinance into more affordable, fixed-rate loans backed by the Federal Housing Administration.

In general, when considering whether to modify a loan, Lenders determine whether the borrower has the means to make payments on their loan, if the loan terms were changed slightly. This is where 80% of homeowners fail to comply, because with the actual inflation and increased cost of living, their income ratio to expenses rarely leave room for the new mortgage loan unless the principal gets seriously reduced, which is not happening right now.

The original homeowners rescue plan intent to help homeowners facing foreclosure through HUD, Fannie Mae, Freddie Mac, and FHA Agencies, by reworking existing mortgages Loans directly with Lenders, the thing is, this does not appear to be working as planned, and now with this Bailout, what is being discussed is actually; to buy this mortgages from the original Lenders, and the Government, then try to work out a plan to keep homeowners in their homes.

It is very important that homeowners understand that under the previous Housing rescue Law from July, It is up to the lender to determine what is more financially viable for them if modify your loan, or just foreclose your home. So do not be so confident that under this plan you will get help. I talked about this in previous articles that you can read in my site.

Often when a borrower has not being late on mortgages payments, but faces a big spike in rates, the modification may call for freezing interest rates at the introductory level. The workout could also reduce principal balance or stretch out the term of the loan, from 30 years to 40 years, for example. Unfortunately at this point most homeowners do not fall in this category.

The bill also allows loan to guarantees and credit improvements to avoid foreclosures, but Treasury refuse to be more specific about this. Loan guarantees generally refer to mortgages backed by a federal agency, such as the FHA, or by mortgage insurers Fannie Mae and Freddie Mac. The truth is that the legislation falls far short of helping troubled homeowners, and the Government is nor being specific about this.

Nothing is clear about what is going to happen to homeowners now facing foreclosure, if you will get real help or if all this is going to stay rolled in red tape and bureaucracy. In the meantime banks keep foreclosing properties every minute of the day. The only reality is that you have to Make sure that your stay in the house for as long as possible, and if you are going through financial problems, it is more difficult to achieve.

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