Representative Barney Frank Offers New Foreclosure Help

Posted on March 24th, 2008 by saman

Government official Barney Frank have recently presents a plan that will allow the FHA in guarantee and refinance mortgage loans that have been written down by lenders and mortgage holders.

The plan he proposes could assist in refinancing up to two million loans for borrowers who are at risk. The FHA will be allowed to give three hundred billion in new guarantees in order to assist borrower into getting mortgages that they could actually repay.

What would happen is that in exchange for taking a significant write down on the principal of the loan, mortgage holders would get payment from a FHA loan. This would only happen if the loan that is restructured resulted in better loan terms for the borrower.

The plan also provides for ten billion dollars in grants and loans to acquire and fix up empty, foreclosed homes so that they are habitable.

Lawmakers introduced a bill that would give legal protection from legal liability to those who service mortgages and who take part in the modification of loans.

There are those that feel Frank’s proposal will face opposition from a number of Democrats and some Republicans. In a recent interview President Bush declared that it would be a big mistake for local and state governments to purchase foreclosed and vacant home to stop the blight of neighborhoods.

Those who doubt if the legislation will pass, say that it would be a tough sale and attempting to get voluntary compliance has not worked. The other problem mentioned is that a guaranteed like Frank proposes will make the government responsible for the loans. There is a feeling that a government “bailout” will be met with opposition.

The National Community Reinvestment Coalition presented a proposal of its own recently. Their program called for a program called “HELP Now”. It would be a three-year program that would have the Treasury Department buying loans at a deep discount. Loans purchased by the government would be bought back to the private market after a discount and modified interest and principal.

By discounted the purchase of loans, this would bring balance between helping mortgage holders and making sure that lenders and services will not be rewarded for financing loans that are predatory.

Ben Bernake recently said that the finance industry will have to come up with some fresh ideas to reduce the foreclosures that are preventable. He said that firms should consider dropping the principal of problematic loans. He believes that giving the FHA more responsibility when it comes to mortgages, this could help at-risk borrowers.

Other programs have been proposed. Some call for government support. A plan presented by the Office of Thrift Supervision calls for a new program to be created inside of the FHA that supports FHA insured mortgage help to troubled borrowers.

Congress is working on a plan that would increase the limit of insurable loans by the FHA. Currently, the FHA limit has been increased temporarily. It will last through the end of the year. This is a provision of the economic stimulus plan.