Obama Needs to Overcome Hurdles to Stop Foreclosures

Posted on February 18th, 2009 in Avoid Foreclosure, Foreclosure Prevention

Just like many others across the country, people in Arizona are hoping that President Barack Obama succeeds in his efforts to avert further foreclosures across the country. The president is set to travel to Arizona to launch his $50 to $100-billion program to address the foreclosure crisis.

President Barack Obama

Arizona is one of the top three states hardest hit by foreclosures in the past months, with almost 117,000 residential properties given foreclosure notices in 2008. According to foreclosure tracking firm RealtyTrac, Arizona foreclosures make the state’s housing market the third hardest hit by the economic crisis.

Across the nation, over 2.3 million homeowners received foreclosure notices in 2008. This figure is expected to increase further in 2009, according to RealtyTrac. Credit Suisse also estimated that about 10 million residential properties will be foreclosed from 2009 to 2012.

The case of construction worker Tim Iverson illustrates the difficult situation of laid-off workers across the country. Iverson, who lost his job in November 2008, worries about his mother and their situation as they are at risk of losing their home to foreclosure. They refinanced their house in 2005 for $212,000. Now, they can not sell it for more than $160,000 and can not pay fully the monthly payments with just his unemployment money and his mother’s social security benefit. Understandably, Iverson is one of many in Arizona hoping that their president will come and bring some relief.

President Obama’s plan is expected to make significant reductions in borrowers’ monthly payments so that more homeowners can save their homes from foreclosure. Analysts say that the plan could offer both incentives and pressures to mortgage lenders to work out loan modifications with troubled borrowers.

The goal for modifications would be the reduction of monthly payments to about 30 percent of borrowers’ gross income. The payment reductions could be achieved by reduction of interest rates, reduction of the remaining principal balance, extension of the payment period and other flexible payment plans.

Several are also expecting that the president would endorse a proposal empowering bankruptcy judges to modify the provisions of a loan. Despite the opposition of mortgage lenders to this proposal, consumer advocates say that the mortgage industry need to bear some of the burden for everyone’s good.

There are also those who are concerned about the repercussions of using the taxes of responsible Americans to help pay off the loans of others who did not behave responsibly and who brought themselves to foreclosures. Mark Goldman, a real estate broker and mortgage lecturer at San Diego State University, has an answer to this concern. Goldman says that the taxpayer should not focus on what is fair, but on what will protect the value of his property.

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