Another program is coming to help the homeowners in foreclosure

The Treasury Department has acknowledged that the Obama government’s plan to help at least 50 per cent of homeowners is yet to be launched. It may be pointed out here that the Federal government, in an effort to stem foreclosures, has come up with the Making Home Affordable Program.

As part of this program, loans of homeowners will be revised initially on a temporary basis of three months. When the homeowner is able to pay the modified installments for 90 days, then his loan is permanently revised. This program is a part of the $75 billion program. It is expected to address second-lien loans. These loans are additional and taken along with the first loan. This is like taking two loans for paying the same debt.

The program, known as the Second Lien, will reduce the payment on second mortgage automatically. As soon as the first loan is reduced the amount of the loan also comes down. According to the administration, when the monthly payments of borrowers are revised, it will ultimately help four million homeowners.

Real estate experts say that the second component is necessary to deal with the mess. After all, three million foreclosure filings happened last year. Another three million notices are expected to be handed out this year. That is because many troubled homeowners have second loans to pay along with the first mortgages. At the time, home loan modification program was rolled out, the government had estimated "up to 50 percent of at-risk mortgages currently have second liens." Experts feel that addressing the first loan only is not enough.

There are many homeowners who are not able to pay the second mortgage. They find it quite comfortable to pay the first loan but when the second one is added to that, it goes beyond their affordability. The Second Lien Program will make mortgage payment more affordable. Another problem being faced by homeowners is that a majority of them owe more on their homes than what these properties are valued at. This negative equity has put them in a tight spot. In fact 25 per cent of the homes are “underwater.” This was revealed by research firm First American CoreLogic.

Laurie S. Goodman, senior managing director at Amherst Securities says that negative equity has become a major problem today. The ongoing loan revision program does not address the problem so this is bound to fail.

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