The Obama administration is looking at subsidizing the mortgage payments of struggling borrowers before they default, according to sources familiar with the discussions.
If it comes to pass, the program would blaze a new trail in the federal government's foreclosure prevention initiatives. Until now, the efforts have focused on helping those already behind in their payments through interest-rate reductions and other loan modifications. The Bush administration had not committed any money to helping borrowers.
Obama, however, has pledged to spend at least $50 billion to help borrowers in trouble. Treasury Secretary Tim Geithner said Tuesday that the administration would release its plan within a few weeks. He and Housing Secretary Shaun Donovan have been meeting with banks, housing advocates and trade organizations this week to listen to their foreclosure prevention proposals.
Details remain scarce, but at this point the subsidy plan entails having struggling homeowners take an affordability test and undergo a re-appraisal to see if they are eligible. The subsidy would allow servicers to adjust the loan terms without having the mortgage's investors take a loss, which should make them more open to the loan modification.
Assisting borrowers before they default would help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.
"This will help put a floor on home values," said one person familiar with the negotiations.
Friday, February 13, 2009
Hey Obama, subsidize my rent, too!
Barack Obama wants to subsidize irresponsible homeowners: