Foreclosure Aid Program Angers Some Prospective Homeowners

Posted on December 10th, 2007 by saman

There’s an old adage that says that you can’t please all of the people all of the time. That seems to apply to prospective homeowners who have called the new government-brokered plan like a “slap in the face” because they say they will have to delay home ownership because the new plan will keep prices elevated. At the peak of the housing boom in late 2005 and 2006, some prudent families elected top rent instead of buy because prices were just too high at the peak. They’ve been smiling lately as the foreclosure crisis drove home prices downward. They felt certain that it wouldn’t be long before they could buy a home at an affordable price without having to go the sub prime ARM way that has forced so many into foreclosure.

In other words, these hopeful buyers are saying that helping so many prevent default and foreclosure in 2008-2009 is going to keep them out of home ownership even though they sat out the boom, didn’t cash out their equity, have built-up a down payment and stayed fiscally responsible.

In reality, while the new plan will undoubtedly help many who would have faced foreclosure during the next two years, that will only amount to about one third of those who will be in trouble. The consortium that negotiated the program believes that about 600,000 borrowers can refinance successfully and that another 600,000 can’t continue making their payments even at the current rate. Those who will be able to qualify to have their rate frozen at the current ‘teaser’ level for another 5 years must be living in the home (owner-occupied); must not be more than 30 days behind on their mortgage payments; and have to have a FICO credit score below 660. The loan must also have to have been originated between January 2005 and January 2007. Finally, the buyer who will qualify for the new plan must have home equity of 3% or less. On the bottom line, this leaves 2/3 of the holders of sub prime adjustable rate mortgage loans that are pending interest-rate resets out in the cold. And they are angry too!

Last but certainly not least, there are others who just feel that we shouldn’t be bailing out people who lied about their incomes, have bitten off more than they can chew or who were too lazy to figure out what they were getting into. They wonder why the politicians don’t have to take any responsibility for their actions. And despite the fact that there were some sleezy lenders and brokers who led people astray to make a fast buck, they are sure that many knew they were taking a risk and did so just hoping that the boom would continue long enough to fill their coffers with profits.

What government people and many financial professionals think however, is that we have to be more concerned that this big, broad issue doesn’t seriously hurt the national economy and cost every last one of us in a big way. That does seem to make more sense than the angry ramblings of a few whose future plans are on hold for a while longer.