Obama Expected to Pressure Lenders to Help Stop Foreclosures

By: Joseph Smith

President Barack Obama's foreclosure plan is expected by many analysts and economists to involve significant contributions from the banking industry. Since the banking industry is largely blamed for the factors that led to the subprime crisis that escalated, the industry should do its part in resolving the crisis.

The analysts say that the government will use both incentive and pressure to make mortgage banks work out loan modifications with their borrowers. To achieve significant loan modification results, the government would subsidize the reduction of mortgage loan rates and would require lenders to match these reductions. The resulting match-ups can reduce a borrower's monthly payments by a significant amount.

One of the strategies being considered to force mortgage banks to offer loan modifications is to enact a law that would empower bankruptcy judges to order mortgage loan restructuring. The law would enable borrowers to demand loan modification from their lenders when they are at risk of foreclosure. The banking industry however has opposed this strategy, stating that court-ordered loan modifications would discourage financiers from investing in mortgages.

Notwithstanding the opposition, President Obama and the Democrats in Congress are expected to push the loan modification legislation for approval. They are all aware that most loan modifications made under former president George Bush’s administration did not succeed in preventing further foreclosures because they were mostly voluntary and did not offer significant payment reductions.

The strategy supported by more analysts is the reduction of interest rates on mortgage loans in order to reduce borrowers' monthly payments by significant amounts. The plan is for the lender and the government to contribute equal amounts to reduce the payments. The process would be designed in such a way that it is easy and not costly to implement.

Obama's key economic advisers said they will spend about $50 billion to $100 billion to help more Americans save their homes from foreclosures. They also assured homeowners they have the power to obtain more money from the $350 billion fund, which was part of the $700-billion Troubled Asset Relief Program (TARP) that was given to the Treasury Department for financial bailout.

All the same, there are analysts who are advising homeowners at risk of foreclosure not to expect too much from the loan modifications because many would not be able to benefit from them. The mortgage lenders may do their part in the reduction of interest rates, but they could refuse to restructure the loans of many borrowers in order to control costs.

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Joseph Smith has been educating buyers on the finer points of Foreclosure Properties Articles purchase at FindForeclosureProperties.com for over five years. Click here to visit and find more information on our Foreclosure Properties.

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