Refinancing Plans May Save Millions from the Jaws of Foreclosure

November 3rd, 2008 | Tags: Foreclosure

The government is mulling over refinancing plans that may save millions from the jaws of foreclosure. This is its most determined measure to try and contain the crisis.

It is anticipated that the measure will assist about 2 to 3 million house owners facing foreclosure. The Treasury will have to bear the cost amounting to $40 billion or $50 billion according to two reliable sources conversant with the measures. The plan has not been finalized as yet and the details could be changed. They were not willing to go on record because of lack of authorization to do so.

As per the measure the banks, thrifts as also different mortgage servicers would prevent foreclosures by modifying loans. This will be formulated on the basis of the borrowers capacity to repay. This will be done by lowering the principal loan and interest or modifying the terms of the mortgage.

Foreclosures are the main reasons for the slump in the economy. This September foreclosure listings went up to 265,968 marking a decrease of 12% from August this year. But it is an increase of 21% from September of the previous year. The recent efforts to contain foreclosures have caused some decrease in numbers but the delinquent figures continue to advance. Of all the outstanding home loans, 4.6% were late by at least 90% in September. It showed an increase of 2.9% from September 2007.

The latest measure being planned by the government is the boldest so far – the most ambitious of all the private and government efforts. It takes into its purview a sweeping number of house owners in a standard manner. It is not relying on voluntary efforts of lenders to deal with the defaulters one by one.

Sheila Bair, who is the chairperson of the Federal Deposit Insurance Corp. confirmed that the government is trying bring into force a measure that will effectively help the beleaguered foreclosure victims. Bair said, “Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards. By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”

Another spokesperson of FDIC, Andrew Gray, gave out positive signals about the new measure and said there had been satisfactory talks between the treasury and the government administration. However he added, “it would be premature to speculate about any final framework or parameters of a potential program.”