On Friday, March 26, 2010 The Obama Administration announced ways to stop foreclosure by:
- Legislation requiring lenders to temporarily decrease or eliminate mortgage payments for those who are unemployed or having trouble making payments to no more than 31% of their income. The previous attempts by the administration to help underwater homeowners, which make up 25% of all homeowners, have had little success due to the prior program’s lack of ability to help those who were unemployed. Therefore, the new program hopes to buy these homeowners some time to find a new job and get back on their feet so that they can soon afford to make regular mortgage payments.
- Offering lenders financial incentive to reduce mortgage balances for underwater borrowers who have loans exceeding 15% of their house value or refinancing current borrowers into more affordable interest rates. The reduced mortgage amount will be put into an interest-free account and gradually forgiven over 3 years if the homeowner is current on payments. Until now, officials have tried to steer clear of mortgage reduction because they believed that would encourage people to default on their mortgage, especially if they were able to make them. However, because previous efforts to prevent a housing slump and increasing foreclosures have proved not to be effective, government and lenders such as Bank of America are realizing that mortgage reduction seems the only way to go.
- Offering lenders incentive to find alternative ways to prevent foreclosure if mortgage reduction and interest rate refinancing are not an option through methods such as short sales, which is permitting the house to be sold for less than the mortgage balance.
The assistance will be funded by shared costs between private banks and the federal government, the latter to be funded through the $50 billion TARP (Troubled asset relief program), which will not require additional tax dollar support.
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