Will US Governments New Mortgage Program Ease Debtors’ Burden?

New Mortgage Program

In a step that would go a long way towards mitigating the sufferings of struggling homeowners, the government introduced yet another loan modification program that eliminates the need to furnish income-proof documents or documents supporting ones financial hardships.

The modification has been brought about by the Federal Housing Finance Agency, which regulates Fannie and Freddie. As per the new rules, better known as the Streamlined Modification Initiative, borrowers must be at least 90 days delinquent on their mortgage and make three timely trial payments. It is applicable for loans backed by mortgage finance giants F&F.

The need for these documentations has in the past created bureaucratic bottlenecks. And this is precisely why most mortgage programs in the past have failed to alleviate the sufferings of the house owners.

The new rules will come into effect from July 1, 2013 and will remain till July 31st, 2015. The government has mandated that, mortgage servicers have to send intimation about the modification rule to delinquent borrowers before the 1st of July 2013.

Here are the few changes in the policy

  • To bring down mortgage payments made every month, borrowers can avail lower rates of interest.

  • The rate would be determined on the average of 30-year fixed mortgages. However, the rate would not remain fixed and would be adjusted each quarter.
  • To ease the burden on borrowers whose homes are worth less than what they owe, the government has waived of interest on up to 30% of the money owed. This would bring down the monthly payments of borrowers by about 30%. Additionally, the outstanding amount on their mortgages has to be at least 4/5th of the value of their home. Notably, the new program doesn’t lower the principal owed by borrowers.
  • The latest move is another desperate move by the government to inject life into the sagging housing market economy.

As 20 percent of homeowners mortgage debts outstrip their homes value, revival of the housing sector can soon spiral out of control.

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