Monday 26th of June 2017

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Will the Federal Affordable Home Loan Modification Program Succeed?

The housing crisis has hit some parts of the country harder than others, but there are still many Americans who owe much more on their mortgages than their homes are worth. Some homeowners elect to walk away from the obligation, while others keep paying every month if they can.

In response, the federal government recently announced an affordable mortgage modification program to help lower the amount certain homeowners owe on their mortgages. According to an article in USA Today:

“The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default.

The plan, announced Friday, would also enable the borrowers’ existing mortgage companies to receive incentives to lower their principal balances. To be eligible for the FHA refinancing program, borrowers who owe more than the value of their homes, known as being ‘under water,’ must not have fallen behind on their existing mortgage payments.

Separately, the program also would reduce monthly payments for unemployed homeowners for up to six months. The administration cautioned that the plan isn’t intended to stop all foreclosures or assist all troubled homeowners.”

A Real Fix?

Some experts are critical of the ability of the government’s plan to fix all of the upside-down home loans. According to these critics, the plan is little more than an effort to avoid some foreclosures in the coming years. Current predictions estimate that there will be more than ten million foreclosures in the coming three years, and the federal Making Home Affordable plan is only a small measure to reduce that figure, but not eliminate it.

The program is intended to help roughly four million Americans avoid home foreclosure. Soon, lenders will be unable to start foreclosing until they have verified that the borrower does not qualify for the home affordable mortgage modification program.

Dangers of Government Intervention

The affordable mortgage modification plan not only has the potential to be ineffective, but also intrusive. Anytime the government becomes involved in another aspect of private citizens’ lives, those citizens must sacrifice a certain degree of freedom and privacy. Regardless, every taxpayer will have to bankroll this and other assistance programs that offer costly government solutions to everyday problems.

Although it is difficult to deny government assistance to those underwater with their home loans, taxpayers must draw the line somewhere. Will the affordable mortgage modification program really help fix the housing crisis or will it just exacerbate it while also creating a larger government?