The second phase of real estate market bailout

December 11th 2012

The Obama Government has come up with yet another rescue plan to stabilize the sinking real estate market. It’s expected to reduce the wave of foreclosures and to help the homeowners saving their properties.

Who are targeted by the program

The program is specifically targeting,

  1. Homeowners owing more on their houses than the fair market value of the property.
  2. Homeowners who are unemployed and can't make the mortgage payments on time.

With the ongoing market condition, home values in some areas have dropped by as much as 80% of their initial values, resulting in homeowners owing more on their homes than before. Refinancing the property is also not an available option for these distressed owners since they now have negative equity on their properties. According to the study conducted recently by Moody’s, almost 10% of the homeowners now owe more than 20% on their homes.

Under the Obama mortgage bailout plan, these homeowners would now be able to get their principal mortgage amount reduced with an option to get refinance loans backed by FHA. The Federal Housing Association is said to receive a support $14 billion to execute this plan.

The program is also targeting at the homeowners who have lost their jobs. The program would let them enjoy lower monthly payments on their mortgages for a period of three to six months, when they are receiving unemployment benefits. After which they would be able to qualify for home modification program to lower their mortgage payments permanently.

Skepticism about the program

The program is expected to reach out to 3 to 4 million homeowners. However, experts are skeptical about its success after the failure of Home Affordable Mortgage Program.

Second, it's not clear who would recommend the cut in the principal amount. During the housing market boom those mortgages were sold to investors. Now there could be a confusion who would approve the reduction on the principal amount- bank or the investor.

The market, however, is taking a positive approach towards this initiative. According to some experts, the new plan of the Government has better chances to succeed than the Making Home Affordable Program.

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