The Truth on Mortgage Bailouts
Mortgage Bailouts are plans designed to allow a homeowner to bail out (or be relieved of some or all of the responsibility) of their mortgage loan. In most cases, it doesn't mean that all debts are forgiven. Generally, the plan just aids the homeowner so that the home is not lost to foreclosure. This can involve either freezing or reducing the mortgage interest rate for the loan.
The concept of a Mortgage Bailout Plan is often criticized because many feel that people who were irresponsible to get themselves into bad loans should not be bailed out. Others feel that they should be bailed out because lenders are often very deceptive in their practices. Yet, others feel that a limited bailout option should be available - whereas assistance is provided, but not a complete walk-away option.
Today, we need a national Mortgage Bailout Plan. This is especially needed when the mortgage crisis is so bad that it actually threatens a country's economy and stock market. This usually happens when foreclosure records have been set with millions of households affected. This can occur when the government does not properly regulate how banks are distributing loans to borrowers. That is our current situation. That is when the government has to issue what many refer to as a Mortgage Bailout plan.
Please read on.
For instance, banks have given “balloon loans” to many home buyers. These loans are also known as ARM’s, Adjustable Rate Mortgages, or Adjustable Rate Loans. As we have witnessed, these ARM’s can backfire on everyone. Generally, within 3-7 years the monthly payments for the borrower will increase to a level that is no longer affordable. When millions of borrowers are in this trouble, corporate America is unable to step in to correct the mistake.
So you ask: “Where’s My Bailout?”
President Obama has recently announced the Housing Bail Out Plan. This plan favors loan modifications. The basis of the plan is that foreclosures are not in favor of any of the parties. Because even if the lender sells off your house, it cannot recover all its money, plus you would still lose your home.
Then, why do lenders go for foreclosure? Foreclosure is the lenders’ process to enforce collection of mortgage loan payments. But sometimes the lenders are unreasonable in collection, and there is no ability to work out a loan modification without some additional protection. Some are just impossible to work with.
As we understand, the Housing Bail Out is primarily targeted to home owners whose mortgage loan is owned or financed by the insured by Fannie Mae & Freddie Mac. Now the home owners under water (called negative equity) can approach the banks more confidently as they are eligible for the loan modification even if they do not own 20% equity of the house. The new criteria says that they should be have the mortgage amount standing higher than 105% of the current market value of the house to qualify for the loan modification. The new monthly payments after loan modification can not be more than 31% of the total monthly income. Then, the total of all credit & loan payments together must not exceed 55% of the total pre tax income. The banks or the lenders would get an incentive of $ 1000 per loan modification they do. President Barack Obama has declared a fund of $ 75 billion for this scheme. Besides, paying the banks, this money would also be used to help the home owners in their counseling. The Federal Government would provide them with counselors through non profit organizations.
We think you should have this new arrangement under Obama’s plan. But in the meantime, if you need some protection, see us about Chapter 7 bankruptcy. Keep your home.
