banktime.com

The president is hard at work thinking up ways to overhaul his administration’s tackling of the foreclosure crisis, say experts. Obama is looking to set requirements obliging lenders to lower or eliminate mortgage payments for those homeowners who have lost their jobs. Under the proposal currently being considered, banks would be required to cut mortgage payments to where they accounted for no more than thirty-one percent of the borrower’s income, which is usually equivalent to the amount of unemployment insurance that they qualify for receiving, for anywhere from three to six months. Borrowers might be allowed to completely skip payments under certain situations.

The goal of the new initiative is to target the rising foreclosure rate by attacking one of its leading present causes: the high unemployment rate. While the so-called “first wave” of foreclosures that hit during the financial crisis were undoubtedly due to sketchy mortgage deals going bad as a result of greedy banks and overreaching consumers, today’s wave of foreclosures is stemming from the economic downturn as a whole, as well as the light of unemployed borrowers with no ability to pay on their mortgages.

Obama is aiming to assist homeowners who are underwater on their loans by giving incentives to banks who restructure these mortgages to eliminate some of the negative equity in these properties. The Federal Housing Administration would be able to help out those homeowners who remain current on their loans by allowing homeowners to refinance their mortgages under more favorable terms. With home prices across the country continuing to fall, the issue of upside-down homeowners has become larger and more pressing than ever before. No taxpayer funds will be used to fund the fifty billion dollar program. Instead, the money will be pulled from existing foreclosure relief monies set aside from the emergency bailout program.

Oval Office insiders say that Obama is flush after his victory in the area of health care reform law, and ready to tackle the seemingly insurmountable problems of continued economic grief and unemployment. It’s said that the program will also address the issue of homeowners who owe a great deal more on their mortgages than the house is worth, and are therefore at a greater risk of strategic default. The program will provide incentives to banks who chop the principle loan amounts of underwater borrowers, which is to say those borrowers who owe at least fifteen percent more on the home than it has been surveyed as being worth. One proposal would allow for banks to forgive the extra amount of the loan after three years as long as mortgage payments are kept current. This suggestion would not only address the issue of negative equity, but would also encourage borrowers to stay current on their obligations.

The federal government is also planning to double the sum of incentive cash it pays out to lenders who agree to assist homeowners by modifying the terms of second mortgages, including infamous “piggyback loans.” Incentives for lenders who come up with ways to avoid foreclosing on delinquent homeowners will also be stepped up. One such initiative would reward banks for allowing short sales instead of pushing for foreclosure.