Help for Homeowners Facing Foreclosure Is on the Way

Posted on November 5th, 2007 by saman

Under HOPE NOW, a new U.S. Treasury-sponsored initiative, 200,000 homeowners will be receiving a one-page letter from mortgage servicing organizations advising them to apply for new loans before they face foreclosure. The letter will go out on November 19th, 2007 to borrowers who are delinquent one payment, and will offer advice and help to these individuals before it becomes too late.

Earlier in October, U.S. Treasury Secretary Henry Paulson announced that there now was a new coalition of mortgage service companies, trade associations and counselors who had come together to provide important help for delinquent homeowners. HOPE NOW was formed in response to a housing and mortgage market that has been sharply declining this year. One major factor that is responsible for the problem is adjustable rate mortgages (ARMs) that are resetting and will continue to do so until March or April of 2008. Merrill Lynch, one of the nation’s premiere mortgage houses, has suggested that one quarter of all sub prime loans will end in foreclosure and effectively erase $146 billion in wealth as home values sink in coming years.

According to Moody’s Investor Services, only 1% of homeowners with troublesome sub prime mortgages have been able to have them changed for the better during the first nine months of this year. And many consumer groups have been arguing that mortgage servicing organizations must take steps to revise the terms of these loans if foreclosure is to be prevented.

Individual state efforts have also been on the upswing. In New Jersey, for example, state officials have announced new foreclosure prevention efforts to help thousands of the state’s borrowers avoid inevitable foreclosure through counseling and financial aid. A new task force to study and determine workable solutions for mortgage reforms has also been formed in New Jersey. Under this program, six financial institutions and government agencies including the New Jersey Housing and Mortgage Finance Agency, will make $433 million in mortgage refinancing available to residents. The agency created a new $30-million program that provides fixed-rate loans, credit counseling and closing-cost assistance to families who comprise 140% of the state’s $60,000 median income level. State officials also reported that more than 8,000 residents with sub prime loans went into foreclosure in 2007 and another 11,000 are at least 3 months behind in their payments.

Recently, bankruptcy lawyers and economists told lawmakers that a few changes to the bankruptcy laws could save many homeowners now in trouble from foreclosure. This concept, which is opposed by most lenders, but strongly backed by nationwide consumer groups, would allow bankruptcy judges the power to modify the terms of mortgages for homeowners deemed as insolvent by extending the life, lowering the interest rate or just reducing the amount of the loan. It has been said that this change in applicable laws would save as many as 600,000 homeowners from foreclosure. A subcommittee has already approved this bankruptcy legislation although 16 conservative democrats have requested that party leaders hold off on the planned reform.