Recently, there have been a lot of promises from Washington about helping homeowners who have trouble paying off their mortgages. We are going to investigate how much is being done in practice.
First, let us look at the numbers. Homeowners threatened with foreclosures: 9 million. Money pledged by President Obama to help them: $75 billion. That’s just over $8000 per home. Not a trivial amount, but is it enough?
Actually, the target of the program is the homeowners who can almost make the payments, but just need a bit of help. And $8000 grows to a larger amount, since the lender has to add some of its own money to the pot before the government approves the subsidy. By the time the money reaches the borrowers, it may be quite substantial: something like$500 reduction in monthly payments for the next 4-5 years.
In the two months that the foreclosure prevention program has been running, hundreds of thousands homeowners applied for the program. And 55,000 have already been approved; they are getting smaller monthly payments in exchange for better documentation of their income. It takes some time to roll out the program to all 9 million borrowers who may qualify for it due to the large amount of administrative and technological changes required. Many applicants are rejected due to confusion and misunderstanding by the banks. Hopefully they’ll try again and be approved a few months down the road.
The requirements for someone to apply for the foreclosure prevention program are:
- Mortgage must be acquired prior to Jan. 1, 2009
- Mortgage size must be below $729,500
- Mortgage must be for the primary residence
- Income must be fully documented
- Applicant must sign a statement of financial hardship
- Applicant must attend counseling if total household debt exceeds 55% of income
The important caveat to this program is that it cannot help those who lose a job. If you have no income, don’t expect any help from either the government or your lender. And as unemployment rises, it may lead to many more foreclosures. How the government will deal with them is not yet known.