Emergency Home Loans

Emergency Home Loans—Government Aid to Struggling Home Loan Borrowers

US Government has taken an important step by passing the Helping Families Save Their Homes Act (S. 386), which is called the Foreclosure Assistance Bill. This step is considered to be a part of the plan to save the housing market from collapsing. The housing industry is struggling due to the economic slowdown, and families are faced with foreclosure proceedings. The emergency home loans were introduced by the government to prevent the situation from becoming worse. The Foreclosure Prevention Act of 2008 is designed to provide assistance to families and communities facing foreclosure crisis.

 

Highlights of the Foreclosure Prevention Act of 2008:

The Foreclosure Act will assist up to 9 million families in preventing foreclosure by using tools and incentives for lenders, servicers, and homeowners to modify loans. The act modernizes the Federal Housing Administration loan activities.

Assisting Communities Scourged by Foreclosures:

The Foreclosure Prevention Act provides an amount of US$ 4 billion in the way of emergency home loans to communities facing delinquencies and foreclosures.

Pre-closure Counseling Funds for Families in Need:

The government intends to provide an additional US$ 100 to families to prevent foreclosures of their homes. These funds will be distributed by Neighborhood Reinvestment Corporation to help families keep their homes.

Three Eligibility Requirements for Emergency Home Loans:

  1. The home loan borrower must have a debt-to-income ratio above 31% on the original loan. This means the amount spent on debt (housing and other debt) must be at least 31% of their gross income.
  2. Homeowners have to prove that they are unable to make payments on loans in its current structure. They have to also prove that their objective of utilizing the emergency fund is because they are on the verge of defaulting on home loans.
  3. The homeowner also should not have a second home or home equity line of credit on the house on which loan is borrowed.

Three Drawbacks of Emergency Home Loans:

  1. The DTI ratio condition works well for homeowners as they fulfill the eligibility requirements. Families who have adopted conservative housing choices have low affordable payments. These home loan borrowers do not qualify for funding, even though they met a financial setback due to unexpected expenses or loss of employment.
  2. The foreclosure act is not binding for lenders, and the participation of lenders and mortgaging companies is voluntary.
  3. Though the loan can be refinanced by FHA through the emergency home loans fund, it involves conditions, such as write-off penalties and fees charged to borrowers, which cause loss to the company that had financed the home purchase.

Emergency home loans have higher interest rates if the credit record of the borrower is less than perfect. These loans have their own pros and cons.

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