Waiting For Help From The Bailout?

November 25th, 2008 by BankruptcyCorner

If you are waiting for help with your mortgage from the $700 billion financial bailout, you may have quite a while to wait. Treasury Secretary Henry Paulson told Congress this week that money from the bailout package was suppose to save the nation’s financial system from collapse, and that it was “not intended to be an economic stimulus or economic recovery package.”

Democratic leaders in the House of Representatives criticized Secretary Paulson for his response by citing the legislation that authorized the bailout and his original assertions that the money would be used to buy up troubled assets from the banks in an effort to stem foreclosures and shore up home prices.

“The bill is replete with authorization to you, not simply to buy up mortgages, but in effect to do some spending,” said Representative Barney Frank, citing a four-page list of provisions. “Clearly part of this was not just to stabilize, but to reduce the number of foreclosures, for good macroeconomic reasons.”

The secretary acknowledged that he had the authority to use some of the funds for homeowners, but said that the benefits of the capital injections into the banking system were generating more bang for the buck. In other words, the capital investments are more productive than efforts to keep homeowners in their homes.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, has pressured the Treasury Department to refinance home loans and reduce the debt owed on mortgages for Americans who are behind on their payments and in danger of losing their home.

Her agency has set up mortgage modification programs at banks it has taken over, such as IndyMac in California.

Fannie Mae and Freddie Mac have announce that they will halt foreclosures during the holidays, but experts suggest that without modifications on some of its loans, the foreclosure rate will rise again in January.

Some facing the prospect of home foreclosure could consider filing Chapter 13 bankruptcy in order to stay in their homes. Arrears on a mortgage can be paid out over 3 to 5 years, and the homeowner can stay in the home as long as they can continue to make the current house payment.

It may not be a perfect solution, but homeowners could save their family’s home long before the government’s solution to the economic crisis trickles down to Main Street.