Mortgage relief nears for homeowners

During the recent years, the real estate mortgage rates are resetting higher. The monthly mortgage payments that were so affordable in 2004 or 2005, when the loans were signed, are pushing borrower-homeowners to their limit and beyond. Millions of homeowners financed their dream houses by taking out an adjustable-interest rate mortgage, years ago; some were even already at the edge during those times. For instance, an adjustment on a $300,000 loan to 9.5 percent from 7 percent interest per annum leads to a 26 percent increase, on the installment payment, to $2,523 from $1,996.

Further aggravating the situation is - the market is flooded by foreclosed homes that banks want to unload, and the volume of delinquent mortgages suggests that many more are coming. Some properties have market values that have depreciated for almost 50% off their former prices. Homeowners are in a dilemma, either to sell for them to pay off their debts or just walk away. Some are even thinking- it's better to abandon the property, because the proceeds of the sale would be less than the loan on the property. In some cases, homeowners are frustrated because they can't take advantage of lender programs to cut interest rates, and sometimes the principal balances, to keep people in their homes. To qualify, homeowners usually must be in default or in foreclosure. Some struggling homeowners are being tempted to default on purpose in order to qualify for mortgage relief from the federal government or their lender. These are the problems that confront concerned government agencies and some private sectors, who want to help prevent impending massive foreclosures.

Recently, President Bush signed a wide-ranging housing rescue bill. In it, the Troubled Asset Relief Program requires the Treasury to help homeowners avoid foreclosure. As many as 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes, according to Moody's Economy.com, a research firm.

The plan, which has been designed by the Treasury Department and Federal Deposit Insurance Corp., is close to being finalized. Estimated to cost between $40 billion and $50 billion, the plan would have the government agree to share a portion of any losses on a modified mortgage offered by lenders. The law also provides almost $4 billion in grants targeting foreclosed properties in the hardest hit communities. Tucked inside the law is $180 million for pre-foreclosure counseling and legal services. Funding come out of the recently approved $700 billion financial-rescue program authorized by Congress. This Plan would represent one of the most aggressive and sweeping moves to address the nation's foreclosure mess that must to be addressed by concerted efforts of concerned government agencies, as well as some public sectors.

The new law helps keep the two giant mortgage finance companies Fannie Mae and Freddie Mac afloat, but also gives the government greater control over them. The rescue-refinancing plan aimed to stop the more than 8,000 new foreclosures a day that lenders are filing all over the country. The plan would allow distressed borrowers and their lenders to restructure mortgages, by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee It would also provide benefits for first-time buyers, to receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.

Corinne Hirsch, a spokeswoman with the White House's Office of Management and Budget, said the program "is currently in a White House policy process," suggesting it's in the final stages of being reviewed. Treasury spokeswoman Jennifer Zuccarelli said "the administration is looking at ways to reduce foreclosures."

FDIC Chairman Sheila Bair, who first suggested such a plan, said policy makers need to take additional action to help people stay in their homes, in order to prevent the continued downward spiral of the housing market. "Everyone in Washington now agrees that more needs to be done to help homeowners," she said. Ms. Bair noted the FDIC is already working to implement a framework for systematically modifying loans.

Federal Deposit Insurance Corp. seized control of IndyMac Bancorp -- the nation's 10th-largest mortgage lender (by loan volume). The new entity, called IndyMac Federal Bank, has become a laboratory test of whether the FDIC's program can keep people in their homes FDIC said that those who have restructured their loans have seen their monthly house mortgage payments reduced by more than $380, or about 23% of the total installment payments It restructured delinquent loans so that a borrower's monthly payments for principal, interest, taxes and insurance equal not more than 38% of his or her take home pay. The loan payments were also modified to suit the capacity to pay of the borrower- even allowing interest payments only schemes, with the loan durations extended up to 15 to 30 years period.

by Katherine M