US tries again with new plan
By Alan Zibel and Stevenson Jacobs |
March 29, 2010, Monday
|
Print Edition
Print Edition
THE United States government's bold new plan to stem the foreclosure crisis aims to succeed where previous efforts have fallen flat. Yet just as before, the odds are long, and many struggling borrowers won't qualify.
In theory, the effort unveiled last Friday would help millions of troubled homeowners who owe more on their mortgages than their homes are worth, or who are jobless and need a break on their payments.
But it depends on cooperation from investors and bankers, many of whom have been locked in disputes over whether to reduce the debt owed by homeowners.
And just like the bank bailouts, this rescue plan poses risks. If it doesn't slow the wave of foreclosures or if home prices nosedive, the tentative recovery in the housing market could fizzle.
The Obama administration says the plan will help stabilize the real estate market by keeping many borrowers out of foreclosure. If it succeeds, the plan would limit damage to the overall economy.
The new effort is designed to help two groups:
- Borrowers who owe more on their loans than their houses are worth. More than 15 million homeowners fall into this category, according to Moody's Analytics. About 10 million of them owe at least 20 percent more than their house's current value.
Their mortgage firms can cut the total funds they owe, or they can refinance into loans backed by the Federal Housing Administration.
FHA will get US$14 billion in incentive money from the federal bailout fund.
- Unemployed borrowers. People receiving unemployment benefits would have their mortgage payments cut to no more than 31 percent of their monthly income for three to six months. The plan aims to help 3 to 4 million borrowers avoid foreclosure - the same target as in the original plan last year.
In theory, the effort unveiled last Friday would help millions of troubled homeowners who owe more on their mortgages than their homes are worth, or who are jobless and need a break on their payments.
But it depends on cooperation from investors and bankers, many of whom have been locked in disputes over whether to reduce the debt owed by homeowners.
And just like the bank bailouts, this rescue plan poses risks. If it doesn't slow the wave of foreclosures or if home prices nosedive, the tentative recovery in the housing market could fizzle.
The Obama administration says the plan will help stabilize the real estate market by keeping many borrowers out of foreclosure. If it succeeds, the plan would limit damage to the overall economy.
The new effort is designed to help two groups:
- Borrowers who owe more on their loans than their houses are worth. More than 15 million homeowners fall into this category, according to Moody's Analytics. About 10 million of them owe at least 20 percent more than their house's current value.
Their mortgage firms can cut the total funds they owe, or they can refinance into loans backed by the Federal Housing Administration.
FHA will get US$14 billion in incentive money from the federal bailout fund.
- Unemployed borrowers. People receiving unemployment benefits would have their mortgage payments cut to no more than 31 percent of their monthly income for three to six months. The plan aims to help 3 to 4 million borrowers avoid foreclosure - the same target as in the original plan last year.
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