Federal Home Mortgage Modification Program

The present real estate meltdown is being lead by subprime adjustable mortgages

. The writing on the wall became clear in 2001, but no one heeded the warning. In 2005, the infection exploded the real estate bubble and here we are. While many experts do not agree with this administration's attempt to stop the bleeding, some people like Warren Buffet give tacit support. He writes, "Commentary about the current housing crisis of ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage, Rather foreclosures take place because the borrower can't pay the monthly payment that they agreed to pay." To a home owner it is not just a financial contract. It's their home. They want to stay in their home.

Under the new federal mortgage modification, loan servers are required to reduce monthly mortgage payments to not more that 38% of the mortgagee's gross monthly income. The government chips in to bring the payments down to 31% . If lowering the interest rate down to 2% doesn't accomplish this, then they need to extend the time of the loan up to 40 years. If it still doesn't get the payments down to 31%, the lender is asked to reduce the principal.

The administration's plan is to help 9 million homeowners. The criticism is "shouldn't they be lowering the principal first?" Aren't they just assuring that people will wake one morning, and see that they are still under water with their mortgage, and they say "To hell with this!"? Is the federal government just putting a band aid on an infection? It is still a home to people.

In a few years when this crisis is over, home values will start to come up again. Homeowners will not make the big profits on their homes as they had in the past, but for now they will have their homes. More properties that would have been foreclosed or sold short will not be distressing the market further. Even with the continued price slide, in June of 2009, home sales rose to 3.6% across the entire United States. The inventory of homes has declined. The price slide is caused by the distressed sales. Interest rates on mortgages is also increasing according to Freddie Mac.

It's not over, but even Federal Reserve Chairman Ben Bernanke recently stated that the crisis seems to be moderating. Let's give the mortgage modification program a chance to work.

by: Bruce E. Nelson

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