According to sources in Washington, the United States government has proposed a plan to help homeowners facing foreclosures. Federal officials announced the plan last Tuesday as giants in the mortgage market such as Freddie Mac and Fannie Mae launched a new approach to deal with the millions of foreclosure homes. They are offering borrowers prolonged loan terms or decreased interest rates in order to make the payments affordable.

There is, however, a catch to the plan being offered to homeowners who are in risk of foreclosures: it focuses solely on loans that were owned or guaranteed by Freddie and Fannie. Although they play a dominant role in the mortgage market, they represent only a 20% portion of US delinquent loans.

FDIC chairman Sheila Bair regards the plan as something that is barely there to answer the need of distressed mortgages and foreclosure properties. She stressed that the market has too many home loans that prove to be unaffordable—a problem that should be fixed with some of the billions that the government has spent to aid distressed banks.

Wall Street is unnerved by the crisis that the economy has suffered. Stocks still fell even if investors found some industries that are safe from the slump. The Congress announced emergency assistance for the troubled auto industry and asked the Bush administration to work with lawmakers to reach a swift compromise in a Congress session after the election.

The Federal Housing Finance Agency, who recently took control of Freddie and Fannie, announced the new plan for mortgage assistance. This new approach for avoiding foreclosures will take effect in Dec. 15. The said plan will be the model for companies that provide loan services. FHFA director, James Lockhart, encouraged investors to quickly adopt the program as the new standard in the industry.

The following are the qualifications that the borrower must have in order to be eligible for the assistance:

• Behind on home loan payments for at least three months; and
• Owes 90% or more of the worth of the home.

Those who are excluded from the list are borrowers that have filed bankruptcy and investors who do not live or occupy their homes.  

The following are some of the available help for qualified borrowers, threatened by foreclosures:

• Reduced interest rates allowing them not pay for more than 38% of housing expenses based on their gross income;
• They may also opt for extending their loan to up to 40 years; and
• Deferred, interest-free principal.

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