Chicago Real Estate Blog

The Fed Moves to Counteract Threat of Foreclosures

As homeowners across the nation succumb to foreclosure, struggle to pay their mortgages and worry about the imminent increase on their adjustable-rate loans, traditional approaches to the situation are being challenged and modified. We’ve already recommended anyone in danger of defaulting or loosing their home to speak with their lender directly to discuss different payment options. Well, now it appears the federal government is on the same page and is stepping forward with an appeal to collectors on behalf of borrowers for flexibility in payment plans and more manageable terms.

Following the Labor Day holiday—and the end of the summer selling season—the Federal Reserve and several other government financial regulators announced the details of the new "loss mitigation strategy," an initiative to counteract the serious issues facing the current residential real estate market. The strategy implores mortgage collection companies to provide borrowers in risk of defaulting on their loans with alternative options to their current payment schedules, such as deferring payment, reducing the loan size, or increasing the amount of time to pay off the loan.

While the proposal is completely voluntary, mortgage firms have a vested interest to help their borrowers as the company also stands to lose money on a foreclosure (oftentimes 20% to 40% of the loan sum). So, lenders who work with homeowners to come up with new terms that allow the borrower to continue payments, benefit in the end as well.

But even with motivation from the government and the promise of additional bills to help ease the circumstances created by the subprime loan industry, it is important for borrowers not to sit on their hands and just wait for things to turn around. Instead, if you are a homeowner in jeopardy of loosing your condo or house, talk to your lender and discuss what both parties need to do to ensure that doesn’t happen. The sooner you act, the better.  

Posted at 03:37PM Sep 05, 2007 by Yuval Degani in General  |  Comments[0]