New York, New York (WiredPRNews.com) — CNN reported that the US government has approved a plan for the prevention of foreclosure in which the FHA will be allowed to insure $300 billion of new loans for more than 4 years if money lenders agree to reduce principal mortgage amounts.
In order to qualify, the lenders will have to reduce the debt amount to a maximum of 85% of the current value of the home, and if the loan refinanced by the FHA goes into default, the FHA must pay the to the lender the rest of the owed principal.
Opponents of the plan argue that the strategy is a “bail-out” for investors, lenders and speculators. Since the lenders are allowed to voluntarily take part in the program, critics say that they will only put their most risky loans into this program. The supporters of the program say that it has been limited to the loans for residents that are occupied by the owners and not by speculators.
The investors and the lenders will each be eating the losses on each loan and the borrowers will be required to pay a higher premium than usual to the FHA for insuring the loan. They will also share their home equity with government. Supporters also say that if the borrowers are still not able to afford even the 85% of the appraised value, then they are not eligible to qualify for this program.
Wired Business Reporter