By Ashley Russell on February 9, 2011
.jpg.aspx?width=75&height=75) With the economy taking a turn for the worst, many are looking into refinancing their loans in order to decrease their mortgage payments to a more affordable level. With lower payments, many Americans can keep from foreclosing on their houses.
Typically in the free market, loans are taken out from private lenders. If someone loses their job, runs into money problems, or for any other reason wants to refinance their house loan they can usually go through private companies. This is because after a couple years their loan to value ratio—how much of the loan is left versus how much the property is currently worth in the market—is low enough for these companies to refinance loans. With the recession in full swing, values of houses have dropped significantly making these ratios higher than normal. This makes it impossible for families to refinance because private companies do not want to refinance loans with such high ratio rates.
Since foreclosures and debts rose, the government stepped in and took over Fannie Mae and Freddie Mac—two of the biggest private investment companies. Under the “Homeowner Affordability and Stability Plan,” the government is capable of offering two solutions to middle-income families.
First, the government can allow middle-income families who have loans a 30-year, fixed rate loan. This loan has a low and affordable interest rate that will never increase. This is for families who have a high ratio that no private company will work with them, however, not high enough to require federal funds.
Second, for those who have a loan ratio greater than 100%, meaning their house is worth less than they owe on it, the government offers a loan modification plan. The government steps in and uses federal money to make these families able to have affordable payments over the next five years.
Each of these plans is designed to help the families to gain control over their monetary situations with government help to back them up.
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