WASHINGTON — The Obama administration is trying to re ignite it's failed attempts to help the foreclosure crisis with an effort to assist homeowners with upside down mortgages.
The Federal Housing Administration (FHA) will allow banks to give these homeowners refinanced loans backed by the government. Under the new plan lenders are required to forgive at least 10 percent of the original mortgage. Investors will decide which borrowers are invited to participate in an effort to stop homeowners from defaulting or just walking.The principal reduction plan was first announced in March 2010. Its release represents the latest of numerous efforts by the Obama administration to address the foreclosure crisis. So far, the governments HAMP program has done little to stop the housing crisis and has run into numerous problems. The lending industry simply was not prepared for the onslaught of distressed homeowners, the economy has not improved and millions of homeowners had taken on so much debt there's no solution other than bankruptcy, short sale or foreclosure.
Almost half of the 1.3 million homeowners who have enrolled in the HAMP program– overseen by the Treasury Department – have already fallen out over the past year. Most of the homeowners interviewed state the governments loan modification program is an absolute nightmare, with the mortgage servicers constantly losing their documents and then claiming borrowers did not send back proper documentation. Banks say borrowers often didn't return the required documents but we know first hand that's just not true. While every borrowers situation is unique, the stories are all to similar.
The governments new refinancing program takes a different angle. It will allow investors in mortgage-backed securities to evaluate their portfolio and choose the borrowers that will be offered refinanced mortgages guaranteed and backed by the FHA. The thought process here is that there are loans investors simply want to unload because they have a propensity to default.
However, when faced with the choice between reducing principal balances on home loans and foreclosing, investors have generally chosen to foreclose on homeowners. Many industry experts doubt the new program will persuade these investors to change their minds. Government officials acknowledge that jump starting the principal reduction plan will be complicated. The Federal Housing Authority Commissioner David Stevens stated that it will "require significant coordination and operational execution by several parties to be successful."
The government is optimistic and estimates that between 500,000 and 1.5 million borrowers could be helped. But Stevens said the number of homeowners who will actually benefit will be toward the low end of that range. Other industry experts say lenders are likely to only offer refinances to homeowners who have seen their home values sink 40% to 50%. These are the borrowers that are in danger of walking away from their homes or filing bankruptcy. The new refinance program is funded with $14 billion from the existing $75 billion mortgage bailout program.
The problem is to qualify, homeowners must be current on their mortgages and most these people are not. Homeowners who have already received loan modifications may still be eligible. The new government plan is limited to loans in which homeowners owe at least 15 percent more than their home's current value. The sad truth is, lenders are encouraged to participate but not required to. For homeowners who have 2nd liens such as 80/20 loans or HELOC's, filing bankruptcy Chapter 13 may be a better option. " These junior liens in most cases can be wiped out completely through bankruptcy",says James D. Zhou, California bankruptcy lawyer. Zhou is the senior partner of the Law Offices of Zhou & Chini and sees a lot of upside down 2nd's on California properties. As of the end of June, about 11 million U.S. homes, or 23 percent of those with a mortgage, were in this position, according to real estate data provider CoreLogic.
To see if you are a good candidate for the governments new program or to get bankruptcy Chapter 13 information the bankruptcy attorneys at Zhou & Chini offer free consultations at over 10 California locations. To schedule your consultation please call (800) 972-9600 or visit them online at ZhouChiniLaw.com
From the author: California Bankruptcy and Foreclosure Attorneys
