Some Foreclosures Can Not be Prevented

Posted on July 22, 2008
Filed Under Foreclosures |

Because of the record number of foreclosures, the administration has been scrambling to help people keep their homes but the Secretary of Treasury Henry Paulson has said that some people are not able to be helped.

Paulson has stated that some of the high number of foreclosures cannot be prevented. He stated that there is very little policy makers can do or should do to compensate individuals for what he calls “untenable” financial decisions. In other words, he is saying some homeowners should not be helped because the foreclosure is their fault.

Since summer of last year, the administration has focused on cutting down “preventable” foreclosures. These are cases where the distressed homeowner wants to keep their home and they have the finances to do so.

The administration has been working with an industry group called the Hope Now alliance to encourage banks and lenders to help distressed homeowners through refinancing and loan modifications. These workouts would be done for those who can afford the new loan and can keep up the payments.

Paulson has stated that since July of last year millions of homeowners have been able to stay in their homes because of loan workout programs.

Congress is now working on legislation that would allow the FHA to provide new and cheaper mortgages to those distressed homeowners who would have a hard time refinancing their home with loans that were insured by the government. Lenders and banks would have to absorb a big loss by reducing the amount that is owed on a mortgage.

Further, the administration has announced that by July 14, they will be ready to implement an expansion of the FHA that will let borrowers who have gotten behind on their mortgage payments because of economic hardships or rate resets. These homeowners would be able to get loans that were more affordable.

As part of the foreclosure rescue package that is being discussed in Congress, lawmakers are also looking to oversee Fannie Mae and Freddie Mac, the leading mortgage providers in the country, more closely. This is something the administration is highly in favor of.

The government is also working with the Federal Reserve and other financial institution to explore “covered bonds”. Covered bonds are being considered as a way of lowering the costs of financing a mortgage.

Covered bonds are funded by a bank or lender and are backed by cash flow from different debts and mortgages. If the one that issues the bond suffers financial problems and goes into bankruptcy, those who have purchased the bonds will be able to claim them as assets. These types of bonds are used all over Europe. In Europe these bonds are used to finance commercial and residential real estate, credit card debt and student loans.

As the foreclosure crisis continues to grow, it is up to everyone to find a solution. Homeowners, banks, lenders, mortgage companies, local and state governments, and the federal government need to work together to find a solution to the mortgage mess. Homeowners especially should do all they can to see if they can save their homes, in spite of what some may say.