New FDIC program, still under development will let some homeowners earn a mortgage principal reduction if they stay current on their monthly payment.
Under the FDIC program the mortgage principal reduction will apply primarily to the growing number of homeowners who are underwater. It will be limited in scope and will be tested later this year.
Here is how FDIC will conclude if the upcoming program is successful. Currently, more traditional foreclosure prevention programs include mortgage modification, cut in interest rates and various refinancing options. In this new initiative "borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period," Washington Post writer Renae Merle explains. Then, the government will compare the traditional methods of helping the underwater homeowners to this new method.
The government agency considers this as an effective way of foreclosure prevention. It is estimated that more than 20 percent of home loan borrowers, or 11 million homeowners are underwater on their monthly payments.
This initiative from FDIC comes in the midst of two other options on the media discussed last week. The first was the Administration's consideration to ban the foreclosures unless the borrower is offered a reasonable modification or payment reduction plan. The second proposal came from the Mortgage Bankers Association, which put forward a plan according to which the mortgage lenders would reduce the payments for distressed homeowners and the government would subside the participating banks.
Written by Armen Hareyan
HULIQ.com
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