US needs new housing program after loan mods failure

Despite efforts by the US government to ease foreclosure woes through its loan modification program, many troubled borrowers are still finding themselves forced out of their homes.

About 50 percent of the 1.4 million borrowers who applied for loan modifications were evicted out of their homes while the others failed to even avail of a mortgage reduction.

Critics says that the government should now review its Home Affordable Modification Program or HAMP since it clearly failed to address the increasing number of foreclosures among homeowners and should instead consider the following alternatives: government-backed mortgage refinancing, right-to-rent and cram down.

Economic advisers have been pitching for a mortgage refinancing program which involves a new round of mortgage-backed securities issued by government sponsored finance firms, such as Fannie Mae and Freddie Mac. This housing program would target low income families as well as some 30 million borrowers who are burdened with high interest rates.

While proponents insist that this plan would not cost US taxpayers any money, critics say that this could be just another kind of bailout program that could potentially drain the country’s resources.

On the other hand, others say that renting a house should also be part of the American dream. Westwood Capital proposes a right-to-rent scheme, which will allow delinquent borrowers to continue staying at their homes by opting to remain as renters. This would also enable the homeowners to repurchase their homes at market value in the future or once their finances clear up.

While this plan requires a legislation before it can be implemented, many people are drawn to the idea of having a compromise between the lender and borrower through the scheme.

The cramdown proposal will allow troubled homeowners and cash-strapped borrowers to take and plead their cause to a federal judge where they could ask for longer payment schedules, lower interest rates or even a reduced mortgage balance due to bankruptcy.

Supporters of this plan see it as a response to HAMP’s failure to address second liens and home equity loans issues. They also recommend the creation of a separate court for bankruptcy and cramdown resolutions to enable judges to carefully consider a borrower’s financial position and debts. But bankruptcy judges have already expressed their opinion against the idea.

In general, the message remains the same: the government needs to find a more permanent solution to the country’s foreclosure problems.