Monday, November 17, 2008

Government Help For Foreclosures

Foreclosures are the biggest financial problems in U.S. and have led the real estate market to crash badly while raising questions on the liquidity scenario in the economy. The banks initiate the foreclosure when the borrower is not able to pay the monthly installments. The banks in order to escape the NPA's, auctions the property for recovering the loan. This abrupt sale by the banks leads to reduced property prices in the market as the banks is initiating an immediate sale and the purpose behind sale is recovery of outstanding amount. The bank is not concerned with the market price of the property. This is the worst for any real estate.

As a result of the above problems, Government of U.S. has started working on methods to stop these increasing foreclosures.

Foreclosure destroy the Homeowner

Foreclosure is a serious problem for any homeowner and the same destroys the homeowner financially. There could be various reasons for a foreclosure which may be divorce, unemployment, interest rate hike, bankruptcy or death of the borrower. The homeowner who comes under foreclosure is deemed financially unfit for several years and the bad credit record does not allow any other institution to lend credit to him. The borrower has to immediately the house which makes him lose his shelter. The impact of foreclosure on homeowners affects their personal, financial and social life.

Steps taken by Government

The U.S. government is working on several methods to stop this increasing financial devil. The following are:

1. Bulk Auction Sale: This facility is provided by the government authorities to private lenders and banks to sell off their NPA to the government and recover their loan amount. The government authorities shall support the homeowners for some period to make them come back on payment cycle.

2. Providing protection to lending companies: The government is working on methods to provide cover to the lender in case of a lawsuit filed by the borrower which is the main reason why banks initiate foreclosures.

3. Freezing Interest Rates: The government is trying to freeze housing rates where the loan amount will not be increased and the installment shall be same for coming years which will not disturb the payment capacity.

4. Starting Research groups: The government has setup certain authorities which will be led by experts of finance to understand the problems faced by borrowers and work on solutions for them.

5. Control on Lending institutions: The government is planning take control of lending institutions which can not forcefully initiate foreclosures and help the borrowers in repaying.

These steps by the government shall help in understanding the problem f borrowers and solving the same by working out methods. The government is working on checking the increasing rate of foreclosures and is planning methods to resolve issues with banks and borrowers which brings the borrowers on payment cycle.

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