About Government Refinance and Home Purchase Programs

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There is a foreclosure prevention plan on the table in California that has the government matching principal write-downs offered by banks. Here are some details from a recent WSJ piece on the subject:

California’s proposal would limit aid to low-to-moderate income borrowers and those with loans of less than $730,000. The initiative offers homeowners up to $50,000 in assistance through four different programs:

* Principal write-downs for underwater borrowers, or those that owe more than their properties are worth. Lenders would be required to match write-downs on a dollar-for-dollar basis and loan balances would be reduced over three years. Borrowers would have to prove that they faced hardship and that they could afford modified loan payments after a write-down. The California Housing Finance Agency estimates that around 5,500 households would be able to participate. (Around $427 million would be used for this program.)
* Up to $15,000 for borrowers who are able to make their mortgage payments but who had temporarily fallen behind on their payments and are facing foreclosure as a result of late payments. The state would spend around $130 million on that program, and officials estimate that it could reach 17,000 borrowers.
* Subsidize mortgage payments for borrowers who are temporarily unemployed and therefore unable to make their mortgage payments. Funds would be limited 50% of monthly mortgage payments up to $1,500 and would be provided for up to six months. The state estimates that around 9,000 borrowers would be eligible for that program. Some $65 million would fund this effort.
* Provide up to $5,000 in relocation assistance to homeowners who hand in their keys voluntarily under a “deed-in-lieu” of foreclosure or a short sale, where a home is sold for less than the amount due. Officials estimate that around 6,500 borrowers could participate at a cost of around $33 million.

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