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  •              Troubled Asset Relief Program: Help for Struggling Homeowners

    In March of 2010, President Obama released a series of programs known as the Troubled Asset Relief Program aimed at helping financially struggling homeowners.  In response to the nearly 25% of American homeowners who found themselves underwater, or what is termed as being “upside down” in their mortgages, the President’s plan lowers payments through refinancing and loan modification programs with new government-backed mortgages. The government is offering initiatives for loan providers and banks to write off some principal amounts due on loans for homeowners through these modification programs, rather than just lowering interest rates.  These plans are expected to help three to four million struggling property owners over the next few years.

    The government emphasized that no taxpayer money will be spent on these programs, and that the monies needed for the plan would be instead taken from $50 billion set aside for the Troubled Asset Relief Program.

    The Obama administration enacted these programs in response to Congress, who saw the increase in foreclosures and bank actions as a further step down into economic decline.  The Treasury Department said the projects had been not been initiated to help “everyone,” just the responsible homeowner who finds himself under water through no fault of his own.  Some of these property owners bought their homes at a bad time, others borrowed against the home’s value during the real estate boom while still others took advantage of the FHA’s extended mortgage guarantee programs and made only minimum payments.  It is estimated that in 2010, as many as eleven million homeowners were upside down in their mortgages, or as many as one homeowner out of every five.

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    Initially the Obama administration had offered some financial help to people struggling to make payments, such as refinancing to a lower interest rate. The 2010 program expanded on that and, with the help of the Federal Housing Authority, reached out to refinance homes that had lost value to the point of a homeowner owing more than the property was worth.

    The controversy comes about as some lenders do not wish to get on board.  To be willing to take some of these loans is an increased risk of default and possibly even more money lost for them. The plan itself requires lenders to consider providing relief programs for failed loans despite the risk that the borrowers will default again, though this is balanced by the idea of monies earned by the number of good-standing loans that will be renegotiated. In fact, the new plans require lenders to give unemployed individuals a minimum of three months of rate reduction. The Federal Housing Administration is using some of the $14 billion designated for the Troubled Asset Relief Program to give them incentive to take on the programs, and even insures some of the new loan programs against default.

    This has been a risky business for taxpayers, however.  The FHA is in danger of becoming insolvent should too many of these new loan borrowers default after being moved into one of these products.

    The idea of writing off some principal balances for qualified homeowners is not a new one.  Within 2009-2010, some lenders were already doing just that; why, during the latter half of this time the lenders stopped doing this is unknown.  The number of those principal reduction modification programs fell by at least half.  During this same period of time, the number of homeowners who fell 90 days past due on their mortgages shot up to 270,000 and the number of foreclosures rose to just under 128,860, and increase of 9%. An increase in the number of short sales to 38,000 was noted as well.

    The administration’s original plan had only lukewarm success; a little less than 200,000 people benefited or took advantage of those programs.  This plan promises more help to a wider range of homeowners, however.

    Homeowners must ask for help.  The government will not step in on a homeowner’s behalf if assistance through the FHA refinancing programs is not sought. There are times, the administration acknowledges, that a homeowner is in too deep and suffered to great a loss to be bale to recover.  For such individuals, even if mortgage rates were reduced, they can simply not afford to stay in their homes.

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