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Date May 9, 2009

MakingHomeAffordable.gov May Help Mortgage Woes

As a result of the drop in the property markets, many homeowners have found themselves in a difficult situation. The drop in property values has left many homeowners with properties whose values are way below what they owe in their mortgages. Thus, should these affected homeowners want to sell their properties, they would have to bring cash to the table.

MakingHomeAffordable.gov May Help Mortgage WoesThe mortgage problem is at the forefront of the economic concerns that the Obama administration is trying to solve. Early last March, President Obama launched the foreclosure prevention program.

The foreclosure prevention program is aimed at reducing the debt problems that around 4 million U.S. citizens are facing. The $75 million plan approaches the problem in a number of ways. Mortgage investors, loan servicers and borrowers will receive government incentives. Subsidies for interest rate reductions will also be made available.

In return for these incentives, the foreclosure prevention program tasks companies to modify loans to make them more affordable. In particular, the plan aims to change loan rates so that a typical household’s housing payments would amount to at most 31% of its gross monthly income. Those homeowners who have kept up with their payments also get the chance to refinance for lower-cost loans, even in cases where they have minimal or no equity.

During the launch of the foreclosure prevention program, borrowers were already informed to contact their respective loan service companies. However, the companies said that they would need a few weeks before they could actually begin to process applications. Just recently, banks have begun to do just that.

A number of homeowners have started receiving the benefits of President Obama’s foreclosure prevention program. The previous week, Chase Mortgage of JP Morgan Chase issued 15,000 or more mortgage modifications. Bank of America has also released around 100,000 letters to its borrowers and actually began assisting borrowers at risk in April.

For those who are interested in getting their mortgages adjusted, the best solution is to visit the website MakingHomeAffordable.gov. From there, they can take an online quiz to see if they qualify for the program. Eligible borrowers are then given a list of paperwork to prepare. Once the paperwork is ready, they can then contact their loan service company and follow their instructions to apply for debt modifications. Not all loan service companies are participating in the plan, however. Also, borrowers should be able to negotiate with their lenders through the phone and there is usually no need for a face to face meet.

After contacting the lending company, borrowers will have to wait for the company to decide how to help them out. The company can choose to lower the loan’s interest rate, reduce the balance of the debt, or extend the life of the loan. The goal of the lender will be to lower the monthly payment to at least 38% of the borrower’s monthly income. Once 38% is reached, the government will pay the lender in order to bring that figure down to 31%.

With President Obama’s foreclosure prevention plan, many homeowners in danger of losing their homes can breathe easier. With a lowered monthly payment rate, a majority of homeowners should make it through. An important thing to remember, however, is that the loan modifications do not become permanent until the borrower keeps up with the monthly payments for three months consecutively.

Date April 16, 2009

Capital One Survey Shows Consumers Are Changing Their Spending Habits

The United States recognizes April as National Financial Literacy Month. This is in an effort to highlight the importance of financial literacy and educate consumers on the importance of developing healthy financial habits.

Capital One, in recognition of Financial Literacy Month surveyed over 1000 American consumers to learn more about their spending and saving habits. The results indicate consumers are definitely making efforts to better manage their finances and save more money. The following results from the survey give an overview of the changing spending habits of American consumers.

  • Fifty percent of those surveyed have been clipping coupons to save money.
  • Fifty percent of consumers are canceling or postponing their vacation.
  • Sixty-two percent are cutting entertainment expenses.
  • Sixty-eight percent are not dining out as often.

This news is encouraging and indicates that American consumers may finally “get it” when it comes to the excessive consumerism that has taken over our society in the past few years. Unfortunately not all survey results are as positive. While most Americans are making temporary adjustments to their spending habits to survive the current financial crisis, other results indicate consumers are not really making the long term lifestyle changes required for financial security. 

  • Forty-seven percent of respondents are putting less money in their savings account.
  • Forty-one percent have reviewed their credit report, even though most of the respondents are aware they have access to a free annual credit report.
  • Twenty percent have never reviewed their credit report.

These results indicate that there is indeed a need to focus on financial literacy in this country as consumers continue to struggle with increasing the amount of money in their savings accounts. In addition to not increasing their savings, it would seem consumers are not taking advantage of reviewing their credit report. Your credit score is important in so many areas and the information on your credit report can affect your score. By not viewing your credit report you are unable to notice and correct erroneous reports or view activity that may indicate identity theft.

Americans must not only focus on the short term benefits of altering their spending habits but also recognize how the positive changes they implement now will have long term benefits financially. To properly manage your personal finances you need to not only spend your money wisely but also save and invest in your future.