Benefits of Mortgage Aid Package Debated

[Apr 11, 2008.]

 

The U.S. Treasury reports that its mortgage aid plan has assisted 45,000 homeowners in obtaining new loans. However, a mortgage expert running the program says a number of these subprime mortgage holders may not receive relief in the long run.



Some homeowners are being helped through temporary cuts in their interest rates. Still, others are just being given more time to pay off their debt, according to Bill Longbrake, an adviser for the Financial Services Roundtable. Those facing longer loan terms may end up paying late fees and other penalties. In the end, only a small fraction of borrowers will see an outright reduction in their loan principal.



The new program is known as Hope Now, and it provides loan modifications to those with subprime mortgages who have seen a jump in their interest rates. The White House had billed the program as a long-term solution to the nation's housing crisis, which represents the worst housing market in some 16 years.



Under the program, borrowers have been granted a 5-year freeze in their interest rates so that they can establish new loan terms with their lenders. However, loan companies have been less than generous in their loan modifications, according to Longbrake.



A spokeswoman for the Treasury has said that Hope Now is designed to prevent foreclosures. But she refused to talk about the type of loan term changes being offered by lenders.



Treasury Secretary Henry Paulson has predicted that the number of homeowners taking part in the program will increase in the months ahead. He also noted that, since late last year, subprime mortgage holders have been helped by a sharp drop in a benchmark long-term interest rate. Consequently, some homeowners no longer need assistance from Hope Now. Meanwhile, some nonprofit organizations are concerned about the fact that Hope Now only offers help in the short-term.