Essay Sample on Mortgage Crisis

Introduction

The mortgage crisis as from 2006 has led to the various programs to provide the homeowner with relief from mortgage obligations. The mortgage assistance relief servicesenabled service plan and represented implication that helps the homeowners prevent the foreclosure. Loan modification, forbearance agreements, and short sales are some of the mortgage relief programs available to homeowners(Hendershott& Pryce, 2015). Making home affordable by the government requires these programs designed to avoid financial trouble in the housing market. The two types of mortgage available to the homeowners include refinancing and loan modification. Depending on the circumstances, there are severaloptions to mitigate the mortgage crisis.

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Loan modification is one of the mortgage relief programs available to the homeowners. The purpose of this type of relief program is to enable borrowers to get the monthly payment that is affordable to their level. The affordable mortgage payment enables in defining the borrower's monthly gross income. Through the modification of one or various components of the mortgage such as lowering the interest rates, an extension of the life of the loan and reducing the loan principles, the monthly gross income is achieved.

To avoid the foreclosure, there is a need for the lender to agree on modifying the terms and condition to have the loan. Loan modification entails negotiation between the lender and the borrower hence contacting the mortgage company and discussing the problem as well as proposing the solution is essential for avoiding foreclosure. With a short sale, there is less opportunity for the mortgage which is a lousy deal option as compared to foreclosure. The credit then hit hard hence penalized through paying the fees and commissions depending on whether the lender allows it.

With the federal government creating updates on the loan modification programs, the borrower only needs to verify a legitimate financial hardship. As a result, the loan modification mortgage relief program has the potential for a lasting impact to both the borrowers and the lenders as well as the economy at large given that incase one is facing foreclosure thus need to apply for a loan modification based on the temporary halt due to the foreclosure process.

Refinance is another mortgage relief program available to the homeowners. Home affordable refinance program gives the homeowner who is not able to pay to refinance the opportunity to gain lower mortgage rates with a significant decrease in the value of their homes(Theunissen, 2012). Through refinance, the borrowers are allowed to have their first mortgage even if they have a balancing of more than 100% of the home value. For example, if the amount of the mortgage is $450,000, the borrower can refinance if the home value is worth $350,000 only.

Refinance mortgage relief program ensures equity for the borrowers' homes since the borrow is allowed to lock the lower rate or, the long term while making the payments to be more affordable. However, with a defaulted loan, there is no option available hence foreclosure.

The federal regulation with various changes on the refinance, the homeowners pay the mortgage on time taking advantage of the decreased value of homes. As a result, the borrowers and lenders, as well as the economy at large,are gain potential lasting impacts. However, due to the financial crisis, there are scammers taking advantage of people's desperate situations(Zhu, Janowiak, Ji, Karamon, & McManus, 2014). Also, homeowner defaulting to pay the loan is at risk of losing the home to foreclosure. As a result, the mortgage with the highest delinquency rates with has higher personal loans. Struggling to keep the monthly also have no options but the action is taken against the borrower.

References

Hendershott, P., & Pryce, G. (2015). The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest. Electronic, 12(1), 145. doi:10.3386/w11489

Theunissen, A. (2012). Securitization, Loan Modification and the Supply of Subprime Mortgage Credit. SSRN Electronic Journal, 8(2), 123-234. doi:10.2139/ssrn.2325564

Zhu, J., Janowiak, J., Ji, L., Karamon, K., & McManus, D. A. (2014). The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program. SSRN Electronic Journal, 9(4), 235-645. doi:10.2139/ssrn.2522749