Lisa Simpson
May 5,2010
In: Foreclosure

Questions about how far the Foreclosure Prevention Programmes of the Government Have been Effective

Questions about how far the Foreclosure prevention programmes of the government have been effective.

Prominent Democrat in the Senate has raised questions about how far the foreclosure prevention programmes of the Obama government have been effective. The top ranking Senator of the President’s party has publicly queried the efforts of the government in helping the foreclosure victims.

Last March the government announced alterations made to the HAMP programme to help unemployed borrowers owning mortgaged homes and underwater borrowers. The former would be qualified for temporary assistance while the underwater homeowners would have the principal on their mortgages reduced.

In the hearing of the Senate Dick Durbin (Democrat/Illinois) the assistant leader of the majority told Timothy Geithner, the Treasury Secretary that was “concerned that these changes don’t go far enough to help unemployed and underwater homeowners. Under the current plan, servicers may still have more incentive to foreclose rather than to modify mortgages, and many borrowers will still find that default may be easier than staying underwater. These changes won’t be implemented until the fall, and may be too little, too late.”

It has been observed that those who are underwater with the value of their property being less than the loan amount tend to default in greater numbers than those whose have positive equity. The greater the gap between property and loan value the more are the borrowers likely to default and or to walk away from the debt altogether. This has prompted many groups including homeowners, Congress members and investors to call for a healthy slicing off from the principal.

Richard H. Neiman the chief banking regulator of New York State and a member of the Oversight Panel of the Congress said, “We have heard from servicers that whenever principal reduction is included as a component of the modification, even at the same debt-to-income ratio, the outcome is more sustainable. This highlights the importance of incorporating broad principal forgiveness into foreclosure mitigation programs.”

The HAMP that had made its debut in February involving $75 billion is part of the steps taken by the government to rein in foreclosures.

A report released last April showed that three fourths of the borrowers who have managed to bring down their mortgage payments through HAMP are underwater. About 170,000 troubled borrowers were deeply underwater having at least 25% negative equity. It calculated to every house worth $1.00 the loan amount was $1.25.