Today, the Federal Reserve Bank of Boston (FRBB) announced an initiative designed to help troubled New England homeowners facing foreclosure.The FRBB, together with five prominent banks (Bank of America, Citizens Bank, Sovereign Bank, TD Banknorth, and Webster Bank), have created what they term a “Mortgage Relief Fund” of $125 Million allocated to “make it easier for some homeowners who are paying high rates – and those who face a reset of an adjustable-rate loan – to refinance into a more affordable mortgage, avoid delinquency, and avoid foreclosure.”
First, it’s important to understand that this “fund” is essentially simply a commitment to make new home loans to "qualifying" homeowners and in a sense can be interpreted as a commitment to not flatly deny troubled homeowners access to loans with better terms.
Each of the five banks are in the business (at least in part) of making home loans, so by participating in this “fund”, they are simply stating that they will each consider lending up to $25 million to existing troubled homeowners so long as they meet basic qualifications.
But what are the basic qualifications homeowners must meet in order to be considered worthy of being lent to?
- Your house is worth MORE than the total of your mortgage loan balance(s)
- You have generally made your mortgage payments on time
- You reside in the property
- You can document your current income
Additionally, it’s important to understand that this effort is NOT simply a private affair as each lender will be turning to both the New England state governments and the federal government for assistance in both insuring and underwriting these loans as stated in the release.
“The banks expect to incorporate Federal Housing Administration (FHA) insurance and beneficial aspects of state programs, which often include flexible underwriting and eligibility guidelines.”
Finally, since $125 million can at best help 500 homeowners (each with $250,000 mortgage obligations), the FRBB has stated that if demand were to surpass the initial amount “funded”, they would consider expanding the program “especially if the mortgages can be securitized.”
All in all this initiative, though it may be touted with high and congratulatory praise, represents virtually no real effort to address the debacle we see before us today and, in fact, seems to provide further evidence that the Federal Reserve is seriously underestimating the severity of the situation.
