Foreclosures: Massachusetts Gives The Lead

Welcome to Foreclosure Repos Blog! This is my first post over this blog, providing all the information you ever needed on Real Estate and Foreclosures in US.

In a positive gesture to put a full stop to rising foreclosures Massachusetts has initiated the sale of bonds to raise cash to create a $250 million fund. It is targeted to help the hapless borrowers refinance and continue to stay in their own homes.

Fannie Mae has been Federally sponsored to buy home mortgages. She will give $190 million. MassHousing the state’s semi public housing agency will sell bonds to cover its portion of $60 million. This fund will provide for counseling and help those lagging behind in repayments to convert their sub-prime loans into conventional fixed rate loans. Those buyers who have crossed the 60-day limit will be considered but there are restrictions. Only those will be helped who are finding it difficult to cope with raised interests but not those who have failed because of reckless spending. There are other restrictions as regards income and area (Boston and outside) regarding eligibility.

The negotiators will be the housing agencies. The government’s role will be to persuade lenders to agree to new loans smaller than the previous ones and not go in for foreclosures. They will be given a choice to either accept 90/95% of the original loan or go through the hassles of foreclosure. The crucial point is that with the present slump lenders cannot hope to recover the original amount and pay all incidental costs through auction. So it makes sense for them to agree to smaller refinanced loans in those cases where the borrower is in a position to go ahead and comply with the new terms. However the state cannot apply force on the lender. Going for a foreclosure might lead to a 30% loss for the lender and therefore he readily agrees to the alternative; whereas via the other route it might be only 10% or 20%.

Other states are following the footsteps of the leader, Massachusetts. Ohio too has stepped forward with the selling of $100 million bonds.

It was not a cakewalk. Massachusetts had to negotiate for months before getting the help of Fannie Mae. The company was created by the government to purchase home-loans from lenders to make property- ownership affordable to the weaker sections. Massachusetts fund will enable hundreds to stay put in their homes through new loans covering 105% of the appraised value. This will take into account incidental costs over and above that of the loan.

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