Bailout bill provisions

The bill authorized the U. S. Treasury to purchase up to $700 billion in subprime mortgages from troubled financial institutions, but in reality this was not accomplished as originally planned.  Instead, the government bought equity stakes in several banks in order to shore up their balance sheets.  To help ease the foreclosure crisis, the bill requires federal agencies to encourage loan servicers to modify existing troubled mortgages by reducing the principal and/or interest rate.  It also extends a tax law change that exempts forgiven mortgage debts from federal income tax.  Previously, the debt reduction was considered income for tax purposes since it is analogous to returning money to the homeowner. 

Video: The Housing Bailout Bill

In addition to creating tax credits and refinancing options aimed at preventing foreclosures, it also expands a Federal Housing Administration program to refinance mortgages and raises the amount of FHA mortgages allowed.  It insures up to $300 billion of at-risk home loans and increases the loan cap guarantee to $625,000.  It provides government backing and regulation of mortgage-buying corporations Fannie Mae and Freddie Mac and creates a $4 billion grant program for state and local government purchase of foreclosed homes.  It includes $15 billion in tax incentives over ten years to stimulate home purchases and creates a first-time buyer credit.

Taking advantage of the bailout

The goal is to keep people in their homes and continuing to make payments, rather than go through the time and expense of foreclosing the property.  For those people unable to make their monthly mortgage payments, they could opt to seek a decrease in the monthly payment, either by lengthening the term of the loan, or by reducing the principal or interest rate.  Lowering the principal would require a write-down by the lender for the amount of the reduction.

Video: Housing and Economic Recovery Act of 2008

The bill allows the government to implement a plan for modifying mortgages it actually acquires, as opposed to loans underlying securities it buys.  Homeowners who live in their home and whose loans meet specific criteria can apply for the Hope for Homeowners program.  It provides for refinancing into fixed-rate loans insured by the FHA.  This is of great benefit to those who have been hit with large interest rate increases on variable rate loans.

Foreclosure options

If you are faced with foreclosure, careful consideration of your options is advisable with the assistance of an attorney or financial adviser who specializes in this field.  Depending on your particular circumstances, foreclosure may be your best option if you made no (or small) down payment and the market value has dropped below the value of the loan.  Should you opt to try to stay in the home, then your eligibility for mortgage relief should be determined as soon as possible.  Ideally, this should be done before your lender has started foreclosure proceedings.  Your negotiating leverage is greater if you take the initiative to solve the problem since it will take time to modify the loan agreement so that it is acceptable to all parties.

Subprime loans actually bought by the government could be renegotiated for 87 percent of the value of the property.  In those cases, the subprime companies whose loans are refinanced would write down the remaining value of the loan.  Refinancing adjustable rate subprime loans into fixed-rate mortgages provided by the FHA would be an option only for homeowners who can afford the modified loans when they are renegotiated at 90 percent of the home's current market value.

U. S. Mortgage Brokers

Adams Financial
Los Angeles, CA
(323) 651-3876

Freedom Capital
Scottsdale, AZ
(480) 346-7448

US Mortgage Finance Corporation
Fairfax, VA
(703) 334-9334

First Equity Professional Mortgage Services
Augusta, GA
(877) 356-8887

Solid Rock Mortgage Corporation
Pembroke Pines, FL
(954) 432-3450

Brown-Lending
Frisco, TX
(214) 387-0683

Ameristar Mortgage
Chicago, IL
(877) 240-5840

Cleveland Ohio Mortgage
Cleveland, OH
(330) 714-0731

BestMortgage, Inc.
Bellevue, WA
(800) 870-4570

Money Tree Financing Group
Lawrenceville, NJ
(888) 253-6364