Archive for June, 2009

The Double-Edged Sword of Mortgage Relief

Posted June 5, 2009 by Bernz

The financial news on television and in the newspapers is full of hopeful rhetoric on the help that is coming from the Federal government to assist homeowners who are struggling to save themselves from foreclosure. The purpose of the intervention, called the Homeowner Affordability and Stabilization Plan, is to keep people in their homes and stabilize the mortgage and real estate crisis that is affecting all investment markets.

homeowner

This is good news for some homeowners but contains some risk for others. One way the programs tries to make home ownership affordable is to allow refinancing for homeowners who are current on their mortgages but do not have enough equity in their homes for a conventional refinance. This plan only applies to those who have their mortgages through Fannie Mae and Freddie Mac, so only a small fraction of at-risk homeowners will be able to take advantage of this plan.

The second part of the plan is for mortgage servicers to allow modification of the terms of the mortgage to ensure that homeowners can stay current on their payments. This is done mainly through interest rate reductions that are partially financed by the government. Each bank has some discretion as to how to manage these loan modification plans, but most require proof that the current mortgage terms are unaffordable to the homeowner. (more…)


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