Good news for borrowers as the bailout shapes up.
The government finally announced the first batch of lenders that will receive home loan aid in an effort to fight off the rising incident of foreclosures in the country. According to the Associated Press, “The administration said the companies would receive a maximum of $9.9 billion in incentive payments, meant to encourage mortgage companies to lower borrowers’ monthly bills. The government expects to finish arrangements with other companies in the coming months. Chase Home Finance, part of JPMorgan Chase & Company, will receive up to $3.6 billion, the largest amount among the six companies. The other recipients are: Wells Fargo & Company, GMAC Mortgage, the CitiMortgage unit of Citigroup, Select Portfolio Servicing and Saxon Mortgage Services.”
Finally, borrowers will be able to afford mortgages at lower rates that can be in no better time but today. As lenders have taken a beating when the mortgage market has slid into huge losses, we need to prop up the housing market and the government (though already late in action) would sustain their programs. By having more potential buyers in the market, this could put a break on the strain on homeowners who are finding it hard to sell their properties.
But here are some things that the industry has to be vigilant about.
First, many are skeptical with the lenders’ prudence since this could put a lot of taxpayer money on the line when they lend recklessly again. With this, we could only hope that the high standards that they’ve set on potential clients can efficiently sift good borrowers from bad ones.
Second, lender activities have to be transparent to avoid any suspicions in their operations. This would entail regular reporting to the Treasury that is backed by careful auditing. If the government wouldn’t want to have another bonus mayhem such as that of AIG’s, then it’s necessary that they follow such rule.
Finally, it should measure the number of approved applications every month in order to track down the effectiveness of the program. If the government can claim to target 400,000 homeowners but only a few are getting qualified or applying (remember Hope for Homeowners?) then they should think of getting the plan on a fast track.