Falling home prices, a huge number of foreclosures and the hesitation of property buyers to invest in property are all features of the real estate crisis, which has been a result of the mortgage meltdown that the US has faced recently. The ongoing economic downturn is predicted to further deteriorate the real estate sector condition even more and could cause over $600 billion losses to homeowners, Wall Street investors, mortgage companies and banks. To overcome the problem of foreclosure, President Obama came up with a plan called ‘HOPE’ for homeowners last year.
The old HOPE plan called for lending services to reduce monthly payments to at most 31% of an eligible borrower's pre-tax income. The plan also included the option to refinance eligible mortgages even if the homeowners had little or no equity thus helping them regenerate finances. HOPE for Homeowners was although a seriously thought out plan and thousands of dollars of incentives were also provided to lending companies so as to attract more and more borrowers to avail these services but due to some loopholes it didn't work according to expectations.
Firstly the terms and conditions were not easily understood by the lenders as well as borrowers, due to which many borrowers complained about being turned away from availing these services. One more reason, which is attributed to its failure, is the conditions that were imposed on the borrowers. They had to give back 50% of any future profits that they would make from selling the property meaning that after opting for this plan they would have to split their earnings, due to this reason borrowers stayed away from this otherwise good plan.
Just recently President Obama, understanding the loopholes in the present system renewed the HOPE for Homeowners plan. Now borrowers would not have to split their earnings and it is expected that this plan would help 25,000 mortgage borrowers in the next decade at a cost of $675 million. Earlier many big lenders didn't offer this plan to borrowers but by providing incentive payments of $1,000 to them, this renewed plan expects much larger participation from lenders. The new version of HOPE also brings with itself the FHA refinance option, for lenders, which requires them to reduce balances to 93% of the market values instead of 90%.
The biggest change that this renewed HOPE plan for homeowners has brought is that it authorizes FHA's parent agency, HUD, Department of Housing and Urban Development, which will now share future home appreciation with the investors. Earlier HUD shared the potential profits of the borrowers on a 50% basis; now a part of it will go to the investors as well. The eligibility criterion has also been made flexible. Those borrowers who don't satisfy the criteria for Making Home Affordable program but are willing to take up this new HOPE plan, will not be sent away from lending companies. By making all these changes, the renewed HOPE plan for homeowners is predicted to help the borrowers as well as make things clearer to them as well as to the lenders. Although the real estate crisis will take some time to fully recover but efforts like these would surely help improve the situation and bring relief to many.
by
Romi Mayder
