Will the government's affordable mortgage modification program work?


Certain parts of the US have been hit harder than others, but there are many people who currently owe quite a bit more on their homes than they are worth. Some have chosen to walk away while others (if they can) have just continued paying their bill each month.

The government just recently announced their affordable mortgage modification program to help reduce the amount some borrowers owe on their home loans. According to USA Today’s article (Aid plan could lower payments on underwater mortgages)…

“The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.

The plan, announced Friday, would also enable the borrowers’ existing mortgage companies to receive incentives to lower their principal balances. To be eligible for the FHA refinancing program, borrowers who owe more than the value of their homes, known as being ‘under water,’ must not have fallen behind on their existing mortgage payments.

Separately, the program also would reduce monthly payments for unemployed homeowners for up to six months. The administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.”

From what I see of the plan, it isn’t in any way intended to fix all the underwater mortgages. It is merely an aid to help prevent some foreclosures over the next few years. Current estimates are that there will be over 10 million foreclosures in the next three years and the government’s Making Home Affordable plan is just a small measure to minimize that number – but not eliminate it.

The plan is supposed to help about 4 million Americans avoid foreclosure. Starting soon lenders will not be able to begin foreclosing until they have determined that borrowers are not eligible for the home affordable modification program.

My thoughts on the program

Personally I think it is a little bit dangerous when the government gets involved in areas like this. It is easy for me to say, because I am not (or at least I think) underwater with my mortgage. But whether you or I would be recipients of this help, the fact is that we all have to pay for it – and even more importantly we are slowly exchanging more of our freedoms for the comfort of having the government “look out” for us and fix our problems.

It seems to me that while it is hard for anyone who needs help to turn it down, a line has to be drawn somewhere. Just like most people, if my house were nearing foreclosure I would probably try to take advantage of the program. But how do we fix the issues? Is the answer just continuing to create programs like the home affordable modification program?

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