Washington D.c., (PressExposure) March 04, 2009 -- A "foreclosure-prevention" plan that was announced on Feb.18th by President Obama, that was intended to quickly help between seven to nine million home-buyers who are presently facing foreclosure, is now facing many obstacles. Whatever the outcome, it will likely help far fewer buyers than was originally intended, and the help will be a lot slower in coming, with a Treasury source having recently stated that, "the lack of consensus among stakeholders likely means a slower, more limited modification process that reworks mortgages, loan by loan, rather than in bulk".
The proposed plan, can essentially be divided into two parts.
Would allocate $75 billion in funding from 'TARP' (Troubled Asset Relief Program), that would be used to cover subsidies and incentive fees for struggling home-buyers, mortgage servicers and investors.
Would allow some homeowners to refinance their loans at lower interest rates by means of the mortgage giants Fannie Mae and Freddie Mac. The two lenders collectively own or insure about one half of the nation's $12 trillion in mortgages and pension funds, hedge funds, insurance companies and private investors hold the other half.
New Treasury guidelines that are due to be released today (March 4th) will more than likely suggest safe-harbor provisions for servicers who are presently lobbying Congress to pass a House bill that would give them more protection from investor lawsuits.
The problem facing "servicers' was neatly summed up by Joseph Suh who is a mortgage securities lawyer in New York, "The servicers really have limited power to make adjustments to mortgages. The investors could suffer. You can't take private property without due process".
Another thorny issue is how to prevent the financially stronger home-buyers from stopping their mortgage payments after which they'd then apply for government aid and then likely lock out many truly needy families. A proposed amendment would require applicants to provide some proof of hardship, such as evidence of illness or job loss.
Treasury Secretary Timothy Geithner said on Tuesday (March3rd) when testifying on the administration's budget proposals, "You have to use a mix of incentive and persuasion to get investors and lenders to modify mortgages for homeowners. And, as a condition for government assistance in our new TARP capital programs, banks are going to have to commit to adopt foreclosure modifications strategies that meet a set of standards we lay out. That will help with persuasion, but you also have to do things that are going to help make it economically, economically compelling for them to do that".