There was another pretty good AP article on the foreclosure prevention bill in the AP recently. Here are some excerpts:
Homeowners staggering under mounting mortgage debt and facing foreclosure could get cheaper, government-backed loans under Democrats’ housing rescue plan.
But first, lenders would have to agree to wipe out part of their debt. And the borrowers would have to show they could afford the new mortgage. They also would have to agree to share any future profits on the home with the government.
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It’s unclear how many would qualify, however, even under far looser FHA standards. Also an open question: whether mortgage servicers would agree to participate in the voluntary program.
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Frank’s two-year program is designed to offer another option that would let borrowers keep their homes and give mortgage holders a chance to get a heftier chunk of what they’re owed than they would with foreclosure. Typically, mortgage holders lose up to 40 percent on foreclosures.
To take part, a loan officer could contact an FHA-approved lender, who would calculate the terms of an affordable mortgage the borrower could be expected to repay. If the existing mortgage holder agreed to take a substantial loss — he would get no more than 85 percent of the home’s value and pay FHA fees and closing costs — the FHA lender would pay off the loan.
The new, fixed-rate loan would be for no more than 90 percent of the home’s value.
The idea behind the plan is that mortgage holders could do better accepting a loss now in exchange for getting a delinquent borrower off their hands than they would if they went to foreclosure. In some cases, however, a homeowner will be so financially strapped that the lender would stand to lose too much from the deal and would opt to foreclose instead.
Critics say mortgage holders would have little incentive to participate in any case, because they would have no chance of recovering a substantial chunk of what they’re owed.
To qualify, borrowers would have to be devoting at least 35 percent of their monthly pretax income to a mortgage payment on loans originated before Jan. 1, 2008.
The bill is H.R. 5830.
