The government has endured long standing criticism that it has not done enough to stop foreclosures from happening. The Obama administration could have done so many things to prevent so many foreclosures, and yet, so the consensus goes, it pitifully failed to do much.
The administration seems to have taken heed of the feedback and done something in the right direction. A program has been implemented that will take care of home mortgage rates for some troubled borrowers. The program is sure to be a godsend for many people who had given up any hope of retaining their homes, for which they had paid hard earned money in a bad economy.
The plan is for the Federal Housing Administration to underwrite new loans for some borrowers, which will offer them better interest rates. These borrowers must owe more money on their mortgages than what their properties are actually worth. Only in such cases, the Federal Housing Administration will be able to offer this help.
Given that there are hundreds of thousands of borrowers who fall under this specification, it is assumed that large numbers of people will be helped by this new plan. An amount of $14 billion is being set aside to fund this program. This money is part of the $75 billion program to prevent foreclosures.
While the plan is not without its merits, the government stands to lose a lot of taxpayer’s money in this program. Most of the $14 billion is being spent on risky loans that were given during the housing boom, and very few of these loans have any chance of being repaid, lower interest rates or not. The main reason behind this is, of course, that the properties are not worth spending any extra money for.