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Government Mortgage Bailout Failing Due to Lender Requirements





As numbers begin to come in, mortgage lenders clearly are subverting the purpose of the foreclosure bailout announced by the Government in February.  By raising the credit requirements for mortgages, lenders are not refinancing troubled loans as planned.  Every day since the program became operational in March, there seem to be new restrictions and requirements of those requesting mortgage modifications and refinancing to avoid foreclosure.

The biggest hurdle placed in the path of borrowers is an increase in credit rating required to obtain refinancing.  Financial institutions have raised the required credit score for borrowers from approximately 720 to as high as 760 and even 780.  Economists are beginning now to see this as a deliberate sabotage of the bailout plan.

Homeowners in trouble are more likely to have reduced credit scores rather than the spotless rating of credit bureaus that is required for such high numbers.  How can a plan to help troubled borrowers succeed if it only applies to those who have no credit problems?

Homeowners with significant equity yet having trouble paying their mortgages are automatically denied by lenders.  Homeowners who took "interest only" loans and now have mortgages that have increased since origination are denied automatically.  When Government officials have tried to encourage lenders to become proactive in applying the $75 billion allocated to help homeowners, lenders have stated they will return the bailout money their financial institution received in the previous financial bailout.

If these large financial institutions are able to return bailout billions - did they really need them in the first place?  The bailout was passed as a plan of voluntary lender participation and mortgage lenders are not stepping up to the plate.  With more and more restrictions being placed on who can and cannot refinance or obtain a new mortgage, lenders see no upside to them of helping homeowners in distress.

The number of homeowners applying for refinancing has doubled in the past year - yet only 25% of those owners obtain the loans they apply for.  Very few of these loans are being granted at the low interests being quoted in the news as any irregularity or even a slight blemish on credit bureau reports results in raising of the interest rate for those few mortgages approved.

The decline in property values has now moved to commercial sector real estate which promises to be the next crisis of property ownership.  Add to that the jumbo mortgages not covered by the foreclosure bailout plan which are due to start resetting later this year - and it becomes clear the housing market will not be improving any time soon.  The mortgage bailout was touted as "the answer" - but is anyone being helped?