Photo: The White House
Things are starting to happen on the foreclosure front which will probably have long-tern negative consequences, but which in the short term may mitigate the the situation somewhat.Until now, the big news of the week has been Bank of America (BAC) announcing plans to get serious about principal reduction — the one one form of mortgage mod that actually can work in some cases.
The Obama administration plans to overhaul how it’s tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 per cent of a borrower’s income, which would typically be their unemployment insurance, for up to six months. In some cases, administration officials said, a lender could allow a borrower to make no payments at all.
The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment.
Will lenders scream bloody murder over this?
Probably not. According to the article, the scheme will be funded from the TARP slush fund, so basically this constitutes a different kind of public benefit to the unemployed.