There was a time when vacant, board-ups were few and far between; now we see several empty homes on every street in many neighborhoods. It doesnt matter if were in lower-class, urban areas or in the middle to upper-class neighborhoods; there are many empty houses that are difficult to sell.
Home Equity line of Credit
Declining real estate values and the troubled economic times have forced many responsible people to be at risk of losing their homes. Unemployment, pay cuts and the decrease in job benefits has caused millions of homeowners to face foreclosure; millions more are expected to struggle before things improve.
This situation is expected to be temporary because as the prices of real estate decrease, the demand will increase, eventually leading to a new balance. However, until this does happen, many families will lose their homes to foreclosure and more vacant properties will force neighborhood values to decline further.
Vacant, boarded homes are an eyesore to neighborhoods; these properties are often neglected, lawns arent mowed, trash and debris accumulates and kids are attracted to what they think of as their club house or fort. In worse case scenarios, child predators find these empty houses convenient for committing unspeakable acts!
New President Brings New Hope
The Obama Administration launched several new programs in March, 2009, to offer assistance to as many as 9 million homeowners who continue their effort to make their mortgage payments. The plan is to reduce the destructive impact of the housing crisis on families and communities. The Making Home Affordable program was designed to support a recovery in the housing market and ensure that responsible homeowners will be able to continue making their mortgage payments.
The Making Home Affordable Program requires the cooperation of the government, loan servicers, investors and borrowers who will share the responsibility of helping people avoid foreclosure and stay in their homes.
The Home Affordable Refinance Program
This program will help up to 5 million homeowners refinance their homes and reduce their monthly mortgage payment by taking advantage of historically low interest rates. One of the requirements to qualify is that the amount owed on the home can be no more than 105% of its value. Though many responsible homeowners made down payments on their homes of 20%, and some paid additional principal payments, a number of people still have problems refinancing due to the drastic decline in market values. The programs implemented by the Obama Administration are expected to provide an opportunity for responsible homeowners, whose loans are guaranteed by Freddie Mac or Fannie May, to refinance through these institutions to make their payments more affordable.
The Home Affordable Modification Program
This $75 Billion program is intended to prevent foreclosures and to assist responsible homeowners who are struggling with their mortgage payments. The Treasury Department will work with federal agencies on this comprehensive, multi-part plan to help millions of people who are facing foreclosure.
This program is intended to help millions of homeowners who are struggling to keep up with their mortgage payments due to the current recession; yet, cannot sell their homes because market values have declined so that they owe more on their mortgage than the amount they can expect to sell their home for. Many responsible homeowners have fallen victim to the hidden fees and increased mortgage payments as a result of the subprime mortgage that seemed to be a great deal at the time it was executed. This program was designed to provide security for families and stability for neighborhoods hardest hit by foreclosures.
One of the greatest things about this program is that it brings all parties together to share the cost of making the program work. The government offers financial incentives to lenders who take a reduced interest rate while responsible homeowners continue making their payments. The result will be a reduced number of foreclosures and vacant properties which force the values to continue declining.
How the Programs Work
The Treasury will work with lenders ad investors to make homeowners mortgage payments more manageable.
Provided the lender agrees to a loan modification, the borrowers payment will be reduced to a level of no more than 38 percent of their income.
The Treasury shares in the cost so that the payment is further reduced, from 38% to 31% of the borrowers income.
The modified payments are kept in place for 5 years. After 5 years, the interest rate can be gradually increased by 1% per year until it reaches the capped rate in place at the time of the modification.
In order to reduce the monthly mortgage payment, the lender can agree to an interest rate as low as 2% and/or a mortgage term extended to up to 40 years. If the monthly payment still does not reach the target amount, the principal can be reduced; this is a last resort.
Lender Incentives to Cooperate
Servicers will receive $1,000 for each eligible modification which meets the guidelines established under this new Home Affordable Modification Plan. In addition, lenders/servicers will receive $1,000 per year, for three years, as long as the borrower is successful in keeping with the program.
Similar incentives will be offered to servicers and lenders who agree to modify or refinance FHA, VA or Agriculture Department loans, according to the new or similar programs that are in place.
Home equity line of credit
Studies have shown that modifications are more successful if they are done before borrowers are behind in their payments; therefore, incentives are being offered to lenders who cooperate before the mortgage is in default.
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