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Home Equity Loan Modifications

[Jul 17, 2009.]


Government Subsidized Program For Modification Of Home Equity Loans

Making Home Affordable, launched by the Obama Administration in February 2009 is a comprehensive plan to stabilize the U.S. housing market.  The three part program includes keeping interest rates artificially low, allowing underwater homeowners to refinance, and subsidizing the bankers to encourage mortgage loan modifications.

According to Jody Shenn in an article written for Bloomberg.com, "The home-equity program offers U.S. funds to loan servicers, lenders and borrowers when debt is forgiven or reworked to lower payments."  This government help may be the push needed to help underwater borrowers regain their footing.  So many homeowners are still left out in the cold, unable to afford their mortgages due to the economic downturn.  Forgiving, or modifying the second mortgages or home equity loans may keep millions of people in their homes - sending much need relief to the housing market.

July 9, 2009 Geithner and Donovan Send A Letter

In an article published by the Wall Street Journal, U.S. Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan sent a letter to 25 mortgage servicers regarding modification of mortgages or home equity debt.  Both men state that they have seen a "significant ramp-up in the number of trial modification offers and trial modifications under way."  Although progress has been made, it has been frustratingly slow.  The two Secretaries have called a meeting in Washington D.C. to take place July 28, 2009.  One source believes that the meeting may be quite hot.  Geithner is likely to scold the servicers and demand much more be done.

The letter written by Geithner and Donovan requested the servicers begin, "adding more staff than previously planned, expanding call centers beyond their current size, providing an escalation path for borrowers," and so on.  The letter includes a possible threat from the administration to publish publicly those servicers who are doing a good job and those who are doing poorly.

Mortgage-Bond Investors Against

In the same Bloomberg article mentioned above, Bill Frey, head of Greenwich Financial Services LLC, is quoted as stating, "The major banks should not recapitalize themselves by picking the pockets of investors, including pension funds representing millions of workers."  The downside of forgiving or modifying second mortgages or home equity loans is that those loans are backed by mortgage bonds.  And those same bonds are owned in great part by investors including pension funds.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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