Following the real estate collapse of 2008 resulting from the subprime mortgage crisis, the economy was experiencing record breaking losses of jobs, economic growth, and other negative circumstances that dramatically reduced average household wealth. To combat the growing threat of more economic losses, the U.S. Congress passed the Economic Stimulus Act of 2008. With respect to the financial and real estate aspects of the stimulus program, it changed the limit to conforming loans and loans guaranteed by the FHA or VA. The government intervened with the intent to stabilize the market. This attempt was geared towards stabilizing the mortgage market, reducing the foreclosure rate, and giving the market the impression that the government was there to help.
One of the main objectives of the economic stimulus act of 2008 was to prevent already existing U.S. real estate assets to further depreciate in value. This was done through the creation of Home Affordable Modification Programs. The programs were geared towards reducing the burden of borrower’s affording the mortgage payments by reducing borrower’s interest rates, prolonging the length of mortgage terms to increase the time a borrower had to pay off their mortgages, and forgiving past due payments.
Home Affordable Modification Program (HAMP)
Hamp provides homeowners with the opportunity to modify the terms of their existing mortgage with the intent of avoiding foreclosure. Current estimates calculate that between three to four million people will experience relief and qualify for an interest rate reduction and potentially other modifications of their mortgage. The program targets borrowers who currently occupy their homes. To qualify, borrowers must have loans below $729,750 and be able to demonstrate a financial hardship, including loss of income, divorce, medical bills, illness, unemployed spouse, and other potential reasons.
Home Affordable Foreclosure Alternatives Program (HAFA)
HAFA was created for borrowers for non Fannie and Freddie backed loans. The program was created to help borrowers avoid foreclosure. The intent behind the program aside from helping individual borrowers avoid foreclosure is to stabilize the health of the U.S. credit market in addition by reducing neighborhood foreclosures which would drive down the price of real estate.
Second Mortgage/Lien Modification Program
This assistance program helps borrowers with second mortgages that are experiencing a financial hardship to modify the terms on their second mortgage.
Home Affordable Refinance Program
The home affordable refinance program provides borrowers with a Fannie Mae or Freddie Mac loan the ability to refinance their mortgage to have a lower monthly mortgage payment.
The above programs are federally created and regulated with the intent of preserving the health of the economy by targeting the well being of the housing and mortgage market. By targeting the most expensive of all assets (real estate), it is believed by economists and government officials alike that reducing the interest rate of borrowers is beneficial to health of a wide ranging aspects of the overall economy such as real estate prices, small business owners, available credit, and other factors which would hinder the growth of the U.S. economy.
