President Barack Obama’s Homeowner Affordability and Stability Plan might not be able to achieve its goal of helping 9 million troubled homeowners save their homes from foreclosures. Because of the many restrictions included in the program, millions of homeowners would not qualify.
Homeowners with jumbo mortgages, which refer to loans over $417,000, are not eligible. In areas like the San Francisco Bay Area, where over 60 percent of mortgage loans are jumbo loans, homeowners can not expect help from Obama’s program.
Borrowers whose mortgage loan balances are five percent more than their current home values would also not qualify. Throughout California’s East Bay, including San Leandro, Oakland and Richmond, many distressed homeowners would not qualify, as most of them owe underwater loans.
It is also known among housing advocates and nonprofit associations that mortgage lenders refuse to work out loan modifications for distressed homeowners in areas hard hit by foreclosures. According to Sean Coffey, head of the Lao Family Community Development’s Multilingual Homeownership Center in Oakland, the banks and mortgage lenders in the area do not want to modify loans. If Obama’s proposal to give bankruptcy judges the authority to modify loans to reduce monthly payments is approved by Congress, it could nudge banks to do some loan modifications. But this proposal is being opposed fiercely by the mortgage industry and some groups of legislators.
Obama’s program also requires homeowners to prove that they have stable incomes, that they have relatively clean credit records and that their mortgages are not over 105 percent of their current home values. If the result of the Hope for Homeowners Program set up by the Bush administration in 2008 to avert foreclosures is to be taken as a basis for projections, the outlook for Obama’s program is bleak. The Bush program intended to save 400,000 troubled homeowners from foreclosures with a funding of $300 billion from the Federal Housing Administration. A look at the latest records of the program shows a very dismal figure of 30 borrowers being helped.
The program to head off foreclosures is also facing fierce criticisms from some groups. They claim that Obama’s administration will use responsible taxpayers’ money to pay for the mistakes and foolishness of homeowners who borrowed beyond their capacity to pay. They also assert that there are millions of borrowers who are struggling with their finances but are doing their best to keep up with monthly payments to avoid foreclosures.
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