The infamous Wall Street Bailout has been in place for several days. The intent of the bill is to provide greater access to credit, hold down interest rates, and prevent a sharp increase in unemployment.
What does the bill do for distressed homeowners?
The legislation does allow for some mortgage modification. The bill enables the Treasury Department to purchase problematic mortgage-related assets. It also sets up a program to encourage companies that service these assets to take advantage of the Hope for Homeowners Program.
The Hope for Homeowners Program is a voluntary FHA loan modification program that was created by the July housing bill. It went into effect on October 8th. It allows for adjustable rate mortgages to be modified into fixed-rate loans with terms up to 30 years, among other things. There is a link to the FHA web page with all the program details in the References list below.
In order to understand the mortgage mess, it’s important to know that most banks bundled their mortgages into securities and sold them to investors all over the world. This makes modifying the terms of a loan really difficult. Once the Treasury owns the mortgage assets, it’s easier to modify the loan terms. At this time it’s unclear how many of these mortgage assets will wind up in the Treasury’s hands, so it’s not possible to say how helpful this will be to distressed homeowners.
A Missed Opportunity?
Prior to the passage of the bailout package, there was some debate about allowing bankruptcy judges to order mortgage modifications. If this had been adopted in the bailout bill, it wouldn’t have mattered who owned the mortgage assets, AND the modification wouldn’t need bank approval. This would have been much more helpful to distressed homeowners. Did you know that under current law bankruptcy the courts can modify loans on second homes or boats, but not on primary homes? Does THAT make sense to you?
References:
A Bill Encouraging to Distressed Homeowners, but Its Reach Is Unclear
Hope for Homeowners Program Details
Tags: bailout, Hope for Homeowners, Lending, loan modification, mortgage modification