Housing Secretary Stands Tall on Foreclosure Program

by admin on February 23, 2009

Shaun Donovan reiterated that the new Obama Foreclosure Prevention Program is designed to help those people who really need it. Donovan uses stronger language than Robert Gibbs did on Friday and he stated that:

There are no flippers, investor-owners or scammers that are eligible for this program.

The Obama administration is trying to stay on top of the court of public opinion to make sure that things don’t backslide on them. After the Rick Santelli rant last week, they want to make it clear that this program is designed to help those who need it and not people who bought second homes or tried to make money by flipping them. The stated goal is to help those people that people that play by the rules and he specifically said, “those that are paying their bills”. This is an interesting quote, because as it stands now, many mortgage companies and lenders will not even consider you for a loan modification until your at least a few months late on your mortgage payments.

The goal in this foreclosure prevention program does remain to help those people that are current in their payments, it’s just still unclear how exactly they are going to determine who gets help and who doesn’t. Once March 4th, rolls around there should be a little more meat in the plan and the operational details will hopefully become more apparent.

There was more mention of bankruptcy judges having the authority to “cram down” mortgages for people that own one home. If bankruptcy judges get the power to modify loan balances, the lending industry will definitely be up in arms as they have fought against this for years. The power that bankruptcy judges may wield remains to be seen, but it’s looking more and more like they might have the authority to make some very concrete changes in mortage balances in the future.

45% of home sales in December were made with people either up against foreclosure or the bank owned the property. Clearly many of the sales that are happening are for troubled assets, personally that’s not a bad thing as we definitely need bloodletting in the housing market, just maybe a controlled bloodletting. There are still many underwater homes, but as long as people can stay current on their mortgages, there is every indication (and historical precedent) that people will continue to pay their loans off even when they owe more than the house is worth.

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