Homeowners Drop Out of Obama Mortgage Plan

Published by julia | Filed under Buyer / Seller Tips, Finance, Real Estate

More foreclosures are feared to happen as more homeowners dropped out of Obama mortgage plan this May. On March 2009, Obama administration launched a program that will assist homeowners in their mortgage payment. The program offers loan modification to make the payment lighter for the borrowers.  The mortgage rate is only 2 percent in a period of 5 years, and the loan can extend up to 40 years. The Treasury Department revealed $75 billion was allotted in this program to aid homeowners, but they still have to undergo screening to determine whether they qualify to avail of the program.

Of the 1.24 million Americans who applied for this mortgage plan when it started last year, about 35 percent has already backed out. Last May, 155,000 homeowners exited the program for the month alone. On the other hand, a total of 436,000 borrowers have been tallied since the beginning until May this year. Many of those who applied were rejected after 3 months deliberation.

One of the reasons why borrowers dropped out is, their mortgage is far beyond what their property is worth, hence, they deem it unpractical anymore to keep paying for the loan. Another is, these homeowners simply have surmounting debts aside from housing loans. There are still car loans, credit cards, insurances etc. to pay, and this can be overwhelming if taken simultaneously. Even if the loan is modified, homeowners find that their debts are still too much. It is for this reason that 6,300 borrowers dropped out of the program right after their loan aid was approved.

The exit of several borrowers indicates that another surge of foreclosures is possible to happen in the near future. This can even dampen the recovery process of real estate. To avoid foreclosure, homeowners can resort to short sale. Short sale is selling a property for less than its mortgage value, and the lender agrees to accept this offer. Homeowners who are on the brink of losing their homes, this can be a better option in order not to severely hurt their credit score. However, not everyone can qualify for a short sale.

Though some homeowners did not make it to qualify for the program, the present administration came up with an alternative loan to make the mortgage payment easier. Lenders agree to modify the loan terms of these homeowners. To date, 7 percent who went into alternative loan ended in foreclosure. Obama is promoting more of these sales by shedding out $3,000 as moving expenses for those who can sell or short sale their homes.

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