Help for Borrowers Troubled by Foreclosures and Lack of Equity
March 10th, 2009 by 
Joseph Smith
Distressed homeowners who do not have at least one-fifth equity in their homes and who usually are not qualified for loan refinancing can still avail of President Barack Obama’s program to stop foreclosures by checking out the program.
Under the plan, troubled borrowers who do not pass the needed equity requirement can purchase private mortgage insurance and use it as one of their documents to pass application screenings. To encourage providers of PMI, the Federal Housing Finance Agency has written to PMI executives to explain to them how borrowers can benefit from low mortgage rates which are hovering around 5 percent. In areas hit by foreclosures and bargain home prices, PMI providers have been refusing to sell PMI policies because of fears of further foreclosures and further housing price declines.
Mortgage borrowers whose loans are owned by Freddie Mac or Fannie Mae will essentially be able to get loan refinancing even if they fail the 20 percent equity requirement. The FHFA however warned that loan balances resulting from loan modifications must not be more than previous loan balances, except additional costs such as insurance, property taxes, association fees and settlements costs.
FHFA Chairman James B. Lockhart said he expects Freddie Mac and Fannie Mae to reduce its losses despite its loan refinancing schemes because of the expected reduction of credit risk. Efforts to modify and refinance loans to stop the wave of foreclosures will stabilize the credit markets.
Additionally, homeowners who did not buy PMI at the time of purchase because they paid 20 percent of the cost of the house are not required to buy PMI even if the values of their houses have declined and the percentage of their equity has been eroded. But borrowers who have purchased PMI must continue paying their premiums to be able to get refinancing from Fannie Mae or Freddie Mac.
Distressed borrowers have only until June 10, 2020 to avail of options offered under the Obama program of averting foreclosures. Borrowers who do not have enough equity but who are current with their payments have better chances of getting loan refinancing. If millions of troubled homeowners avail of the Obama program and do their best to keep up with the monthly payments and save their homes from foreclosures, homeowners will be able to help Obama stabilize home prices, rejuvenate the housing market and ultimately help restore the national economy.
