Government thinking about Foreclosure Freeze

The White House is currently pondering changes to its mortgage modification plan that might very well include a freeze on foreclosed homes.

Industry people who have been briefed on the plan, are saying that the Obama administration is considering changes which would require home-loan servicers to shift delinquent borrowers into the (HAMP) Home Affordable Modification Program before they initiate any foreclosure action.

Under this program, lenders, mortgage-service companies and even investors would not be permitted to foreclose on a homeowner while a buyer is solicited, responds and eventually goes through a trial period under HAMP. Some business analysts believe that these changes, if adopted, will effectively prevent most of the foreclosure actions in the U.S. for an extended period of time.

Despite the fact that home prices and sales have increased somewhat, recent statistics show that the number of nationwide foreclosures are still rising. Loans that were heading into foreclosure rose to nearly 4.6% of all mortgages during the fourth quarter according to the Mortgage Bankers Association. New delinquencies, however, did decline somewhat.

This possible freeze on home foreclosures would be one more aggressive step for the Obama Administration, which has urged banks to be receptive to mortgage modifications as part of an effort to solve the current crisis in the U.S. housing market.

 

So far, government efforts haven’t done enough

The Obama administration is facing increasing pressure from lawmakers and housing advocates to reshape its troubled mortgage relief program. That’s because a year after it took effect, the housing crisis continues to deepen and affect more creditworthy borrowers.

The existing $75 billion program pays lenders to modify troubled borrowers mortgages, typically by lowering their payments by around $500 per month.

However, to date, fewer than 200,000 borrowers have received a permanent change to their loans. According to Treasury Department data recently released, a small fraction of the 3 to 4 million borrowers who government regulators initially believed that this program could help before it expires in 2012 actually qualified for and received mortgage modifications.

That doesn’t appear to be an effective effort to stabilize the housing market. The Swiss bank, Credit Suisse, estimates that 3.2 million foreclosures would have to be prevented this year in order home prices to rise even modestly.

The Obama administration has acknowledged that the program, known as Making Home Affordable, began slowly and has not yet reached its full potential. Many lenders didn’t actually start to enroll borrowers until last summer, months after the program launch.

By then, the primary cause of foreclosures had changed from the risky sub-prime mortgages that helped spur the financial crisis to rising unemployment which is today’s leading problem. Unemployment is tougher to address, due to the fact that jobless borrowers often do not have the money required to make the monthly payments on any type of home loan.

Through January, 2010, almost one million borrowers had received at least some reduction in their mortgage payments as part of the program. Nevertheless, more than three-quarters have yet to receive a permanent modification and must still prove they qualify, according to Treasury information.

Original: Government thinking about Foreclosure Freeze