US Treasury – No bailout for homeowners

| August 6, 2010 | 0 Comments

In the past few months, a rumor was going on that Fannie and Freddie would forgive huge amount of mortgage debts for bailing out the struggling home owners. It was claimed by various sources that government was planning to propose principal balance reductions to unemployed borrowers whose mortgage debts were more than the market value of their houses. This would have helped them to refinance at the historically low mortgage rates in 2010. But on 4th August 2010, a spokesperson of US Treasury has refuted such speculation.

No bailout for home owners

The leaders of the US government have said that there is no plan for new programs such as “August Surprise” to reduce the home loan balances of the underwater home owners or to streamline mortgage refinancing in an attempt to boost the housing market. Previously, various reports have suggested that government was planning to take such actions so that distressed home owners can qualify for the HAMP (Home Affordability Mortgage Program). But there is no truth in it.

Mortgage lenders got distressed by hearing these reports, sending prices down. Prior to the announcement, investors were selling mortgage bonds thinking that they would incur huge losses if a refinancing wave were to come. But US officials are of the opinion that the elements of much talked about “August Surprise” are already there in various types of housing programs. So, there is no point in expanding them. However, in March 2010, government had declared that it might create couple of programs that would let mortgage investors to willingly lower loans balances.

Mortgage analysts are of the opinion that the government can easily improve economic condition by eliminating obstacles to refinancing. In the first week of August 2010, mortgage rates have reached record lows. The interest rate of 30-year fixed rate mortgage loans has dropped to 4.49% whereas the rates of 15-year fixed rate loans have fallen to 3.95%.

In spite of the low mortgage rates, borrowers are not applying for home loans as their income have dropped, their credit rating is low and they don’t have sufficient amount of home equity. Many economists are of the opinion that the government can refinance 37 million loans held by Fannie Mae, Freddie Mac. But Obama administration has no plan to undertake such kind of programs as of now.

Category: Business & Finance News, Featured News

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