Rescue (Bail Out) Package

Will Rescue Package Solve Foreclosure Crisis?

Loan modification will help homeowners by providing lower payment program for five years. Banks and other financial institutions will restructure their loans in a way to accommodate homeowners’ ability to pay. Will this $50 billion part of the $700 billion package stop foreclosures?

What is the Emergency Stabilization Act? Emergency Economic Stabilization Act of 2008 (EESA) signed into law by President Bush on October 3, 2008 created the federal government's Troubled Asset Relief Program (TARP). Under this Act, the U.S. Department of the Treasury has an authority to purchase "troubled assets" from financial institutions.

Purchasing troubled assets of financial institutions by the government will not affect the rights of homeowners or lenders holding mortgages. Modified mortgages under this Act may not help many homeowners who are in real financial trouble as they cannot pay new mortgage installments.

Purpose of Foreclosure Mitigation Effort: On foreclosure issue, Sec. 109 - Foreclosure Mitigation Efforts of the Act reads as follows:

Consent to reasonable loan modification requests: Upon any request arising under existing investment contracts, the Secretary shall consent, where appropriate, and considering net present value to the tax-payer, to reasonable requests for loss mitigation measures including term extensions, rate reductions, principal write downs, increases in proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications.

Five-year relief for homeowners facing foreclosure: Loan modification will help homeowners by providing lower payment program for five years. Banks and other financial institutions will restructure their loans in a way to accommodate homeowners’ ability to pay. If homeowners cannot make their payments under this new plan, then the U.S. Treasury will guarantee this second loan.

We will see soon whether the $50 billion separated for this will be sufficient to rescue troubled homeowners.

Posted: November 5, 2008 ...................................Post a comment
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Related blog posts: Foreclosure news - Bank foreclosures