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Obama wields new tools to try, again, to stem home foreclosures

The Obama administration on Friday unveiled new programs to help 3 million to 4 million distressed borrowers avoid home foreclosures. By one count, 11 million borrowers now owe more than their homes are worth.

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The latest efforts come as foreclosure-relief efforts so far have failed to match White House goals. It also comes as a tide of foreclosures threatens to cause another move down for house prices in the US – which could hurt consumer confidence and the job market.

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Banks unwilling to write down balances

So far, few banks and mortgage lenders have agreed to write down the principal balances on large numbers of at-risk loans. Instead, they have tried to prevent defaults by modifying loans so that monthly payments are reduced. Often the borrowers default even on the modified loans.

That may be changing, as banks weigh their losses from principal reductions against the losses they'd face by foreclosing. This week Bank of America launched its own program to write down balances on loans that are deeply under water. The latest White House plans could give an extra nudge to accelerate this trend.

In a report this week, First American Corelogic estimates that 11.3 million residential properties with mortgages (24 percent of the total) had negative equity at the end of the fourth quarter of 2009. It may take five to 10 years, the company predicts, for many of these borrowers to build a positive equity position in their homes.

The new relief efforts seek "a tricky balance," Ms. Farrell said. The goal is to support an economic recovery by reducing preventable foreclosures, but to "do no more than is responsible to do."

The program exposes US taxpayers to some risk. The various incentives will draw on $50 billion in Treasury funds. That money, in the Troubled Asset Relief Fund, was already allocated for housing-market relief last year. Some of the money will go toward incentives for lenders and borrowers. Other money will go toward backstopping the FHA as it takes new risks refinancing troubled loans – which may end up in default even after the FHA-assisted writedown of principal.

Here are Obama administration news releases detailing the FHA refinance loans, new help for the unemployed and other borrowers, and "frequently asked questions" on the programs.