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Affordable Housing Plan Extended Through December 2016

Despite encouraging trends within the housing sector, government officials have decided to resurrect a 5-year old initiative that was launched at the height of the recession. Otherwise known as the Making Home Affordable program, the Obama administration intends to tap into Treasury funds in order to encourage the construction of affordable rental housing and assist those homeowners with looming foreclosures. The announcement to extend the life of this particular program, issued by Treasury Secretary Jacob Lew, coincides with the revitalization of the housing sector and hopes to curb the foreclosure crisis. The program emphasizes the need to increase buyer activity, which has become stagnant in the face of runaway foreclosures.

“We need to continue to be there for homeowners who are facing foreclosure, those who are struggling with increasing interest rates on their modified mortgages, and those whose homes are caught underwater,” Lew said at an event to mark the program’s anniversary. The foreclosure issue needs to be addressed, as it is one of the main reasons that the recovery has yet to gain the traction we so desperately need.

Data released by the Treasury Department acknowledges more than 1.3 million homeowners that have modified their mortgages under the Making Home Affordable program. As a result, the average participant has been able to reduce their monthly payments by approximately $540 a month. Extending the program through December 2016 should assist in helping the millions of families that still face the threat of a potential foreclosure. While estimates remain varied, the number of underwater households has been estimated to be between the ranges of 6.5 million to 9.7 million.

Real estate professionals say that their underwater sellers are less likely to consider a short sale, even if faced with foreclosure. Even those considering the prospect of a short sale may be unable to do so, as lenders are less likely to grant their approval of the process because of current market conditions. Of particular concern, however, is the crippling impact this may have on the housing sector as a whole. With the amount of foreclosures that remain on the market, many of which do not have the option to pursue a short sale, buying activity will be restrained. Essentially, a decline in short sales will result in lower inventory levels.

“There are still millions of homes underwater, but short sales have fallen off considerably,” says Mark Zandi, chief economist at Moody’s Analytics.” It’s gumming up the system” and could be limiting home buyer activity.

“With would-be short sellers on the sidelines, the housing market may take longer to work through remaining underwater homes, restricting the already tight home inventory on the market,” the Wall Street Journal reports.” If some potential short sellers decide to go through a foreclosure instead, that could cause higher losses for mortgage-bond investors, or companies that guarantee payment of mortgages, which tend to recover less in a foreclosure because of the costs of carrying a home.”

However, in extending the Making Home Affordable program, the Obama administration intends to use money from the Treasury Department’s Federal Financing Bank to stimulate the housing sector. Simultaneously, Congress has been called upon to allow Ginnie Mae to securitize loans made under the Federal Housing Administration risk-sharing program. If the move gains approval, state housing finance agencies would be permitted to underwrite multifamily FHA loans while agreeing to share the risk of losses on the respective loans.

Should housing finance agencies be allowed to underwrite multifamily FHA loans, millions of homeowners may find that they are able to pay their mortgage. With fewer homes underwater, owners will be more inclined to sell their property, effectively stimulating the economy.

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