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US Treasury Looks at New Plan to Help Homeowners Avoid Foreclosure

By Allison Halliday | July 21, 2011

The US Treasury is exploring a new idea which could help 1 million homeowners avoid foreclosure.

A central part of the plan is modifications to delinquent or defaulted mortgages, and it would include reducing the value of the principal by writing it down, bringing fresh capital into the market. This new plan could be applied to mortgages which are bundled into mortgage-backed securities which haven't been issued by government agencies.

US Treasury

The US Treasury is looking for new ways to help people avoid foreclosure. Image courtesy of Musely

Part of the problem at the moment is that write-downs cannot happen under the terms of the covenants which govern these securities, and the Treasury is looking at methods of unlocking these types of securities which account for around 20% of $6.8 trillion mortgage backed securities currently outstanding. Experts think this is a step in the right direction, although it's hardly a miracle cure for the US property market.

New data just released by the National Association of Realtors shows sales of previously owned homes in the US unexpectedly fell in June to a seven-month low, which is thought to be due to increasing numbers of foreclosures and worries over unemployment.

sales of previously owned homes

Previously owned home sales reached seven month low due to worries of foreclosure. Image courtesy of Blog NJ

The current plan being considered by the Treasury is based on a paper whose principal author is Jordan Dorchuck, executive vice president of American Home Mortgage Servicing Inc.

This new idea comes at a time when the Obama administration is trying to step up efforts to help homeowners and revive the housing market, as its Making Home Affordable foreclosure prevention program has been less than successful.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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