Yesterday as part of its ongoing attempt to help struggling homeowners facing foreclosure, the Obama administration enhanced the Home Affordable Modification Program (HAMP).  The new plan seeks to assist unemployed homeowners, as well as underwater homeowners who are upside down on their homes.

UNEMPLOYED HOMEOWNERS

Officials are hoping to provide jobless borrowers with time to save their homes by providing them with more time to find jobs through temporary relief known as forebearance. Some will still need more assistance after the six-month period while others will ultimately lose their homes, administration officials said.  Under the plan, banks and lenders would have to reduce the payments for unemployed homeowners for three to six months. The payments would be no more than 31 percent of a borrower's income; that income would typically be their unemployment insurance.  In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

It is unclear, however, whether this plan will affect affect homeowners' credits scores and what the application process entails.  Additionally, Senate still has to decide whether unemployment will be extended again. 


UNDERWATER HOMEOWNERS

With respect to borrowers who have been hurt by falling home prices, officials say that the government will require mortgage servicers to consider forgiving principal of some loans, if homeowners owe up to 15 percent more than the home is worth.

There will also be a prohibition on mortgage servicers from starting or continuing foreclosure proceedings against a borrower who enters the government's HAMP. Those companies also face a 30-day deadline to decide on applications for trial loan modifications. The current process has been criticized as being too slow to effectively stave off foreclosures.

According to officials, these new initiatives will take effect over the next six months. The changes reflect a new attack by the Obama administration to address the foreclosure crisis, which at first was driven by subprime mortgages going delinquent, and now is being fueled by unemployment and banks which have approved a very minimal amount of home loan modifications despite having received such a great amount of government assistance.

Critics have complained the current homeowner assistance program does little to encourage banks to cut borrowers' principal balances on their primary loans. Nearly a third of homeowners with a mortgage are "underwater" - they owe more than their property is worth - according to Moody's Economy. Lawmakers, too, have been frustrated by the lack of results.

Underwater borrowers now make up about a quarter of all homeowners, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.The new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief.  For instance, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in a short sale.

It has yet to be seen how whether Obama's new directive will be successful.  I guess we will have to wait to wait until Fall or Winter to really see the results.  For more information you visit the U.S. Department of the Treasury's Press Room by clicking on this link.
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AuthorLaw Offices of Hasti Daneshvar