How The Obama Foreclosure Prevention Program Will Help Homeowners

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The Obama foreclosure prevention program aims to inspire banks and other lenders to permit more loan modifications, raise the number of approved refinance home mortgages, and stimulate the provision of more new loans to first-time home buyers.

This initiative of the President was provided with much needed help by legislation known as the Helping Families Save Their Homes Act that was signed into law in May 2009 by the President. This law is a follow through for the Hope for Homeowners Act that preceded the above legislation and it had the goal of assisting homeowners who were underwater in their mortgages.

One of the major aspects of the Obama foreclosure prevention program is to aid homeowners in getting the approval of banks and other lending institutions for the refinancing of their loans to bring down their monthly payments and make it easier for them to avoid foreclosure. It should be noted, however, that a prerequisite for refinancing is a loan balance that is not greater than the current market value of the property by more than five percent. The Obama initiative also offers an incentive to a bank or lender every time an application for loan modification is allowed and decreases the monthly installment to a value that does not exceed 31 percent of the monthly income of the homeowner. By providing additional funds to Freddie Mac and Fannie Mae, the Obama foreclosure prevention program also encourages the provision of more loans to first-time home buyers.

The Obama plan, however, had failed to cause a noticeable effect on the housing crisis as of September 2009. Therefore, critics were quick to point out what they think are the deficiencies of the program and that it is destined to fail. On the one hand, supporters of the Obama foreclosure prevention program countered that it is beginning to have some positive effects. The program seems to have been the main cause of the turn around in the continuing slid in home market prices and the increase in foreclosure filings in some states.

In response, opponents of the President's plan observed that only a small minority of those who should have been eligible of loan modifications were given the go signal. Some critics also noted that the Obama foreclosure prevention program was not founded on sound economic principles. But the members of the Obama Administration are firm in their support for the program and have reported that a significant achievement was made when the number of loan modifications that have been approved surpassed 500,000.

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