It seems like the foreclosure crisis is in the headlines every day lately. If the news story is not talking about the latest facts and figures, it is talking about solutions or new problems in the mortgage industry.
One of the latest solutions in the industry is coming from the Obama administration. This new plan is going to pay people to leave their homes. This is quite different from the previous plan which encouraged homeowners who were in danger of defaulting to stay in their homes. However, the latest program allows homeowners who find themselves in underwater mortgages will allow them to sell their home for less than what they owe while giving them some spending money to help them get back on their feet and find a new place. According to the New York Times, this is the administration’s latest and most aggressive attempt to fix something that has gone past any one solution.
Currently, there are at least five million homes that are under risk of foreclosure. The federal government’s recent plan to pump $75 billion of mortgage modification monies into the problem has only helped a small percentage of those millions of homeowners. On the good side, that has helped thousands of people who found themselves in financial troubles. On the bad side, there is much, much more work that needs to be done in order to just make a dent in the problem.
However, the administration feels that if these millions of foreclosures actually happen, it could make the economy even worse than it already is. There have been signs of turning around recently but the foreclosure problem looms like some dark clouds over any chance of recovery. What’s even worse for the administration is that this could all occur during an election year.
Obama’s new plan is scheduled to begin taking effect on April 5. It is aimed to help the hundreds of thousands of people who did not get any help from the previous loan modification program. Under the new program, mortgage lenders will be asked to accept short sale agreements and forgive the difference of what the home sells for and what the homeowner actually owes on the home. For instance, if the home’s current market value is $200,000 and the homeowner sells it for $175,000, the lender will have to absorb the $25,000 difference in order to make the program work. Afterwards, the homeowner will get $1,500 for “relocation assistance” while also avoiding the stigma of walking away from their mortgage responsibility.
Do you think this new program is a good idea? Does the federal government have this kind of money to be throwing around like this? Is it fair to the lenders or to other homeowners who pull out all the stops to make their payments so they do not default? What are your thoughts on this new program?
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