New York Economists Try to Prevent Foreclosures

Economists from the Federal Reserve Bank of New York are doing their utmost to prevent an increase in the number of foreclosures. The initiative taken in this context is by two economists. It has been seen that the foreclosures listings are on a rise due to homeowners losing their jobs temporarily.

As a result they cannot cope up with the mortgage payments due every month on their home. These two economists have come up with the idea that these homeowners could be helped by the state itself. The state can do its part in helping the real estate market by offering bridge loans to these distressed borrowers.

These recommendations which were made by James Orr and Joseph Tracy are based on a previous program. This program was conducted in Pennsylvaniain 1982 and it was successful. It was called the Homeowners’ Emergency Mortgage Assistance Program (HEMAP).

It is but obvious to ask as to why exactly the government should give loans to borrowers who are unemployed, that is, they have no means of repayment! According to these economists, this risk factor was minimized in the Pennsylvania program.

In this program, the government laid emphasis on who exactly they were giving out these bridge loans to. They carefully chose the borrowers who they knew were temporarily unemployed and would soon be able to repay it because they would start earning again.

As a result, it was an extremely successful strategy to help bring back the housing market out of the foreclosure crisis and to a stabilized condition. This can be seen from the figures and values in the HEMAP program. 80 percent of the borrowers who took these bridge loans were able to repay the state back and they also successfully prevented their homes from going into foreclosure.

A program, similar in nature, was offered by HUD. It was called the Emergency Homeowners’ Loan Program, or known as EHLP. It was not that useful because the last date for submitting applications reached an end.

This is because this date was already extended two times. The program paid for part of the borrowers’ monthly mortgages on an interest free basis. The program was valid for a borrower till the government had paid an amount of $50,000 or if they had paid for two years. Whenever either of the two conditions occurred, the program ceased to exist for the borrower.