Mortgage Foreclosure & Refinance Resource

A proposal to bail out subprime mortgage borrowers who are at risk of foreclosure was floated at a Senate Banking Committee hearing yesterday.

Senator Chris Dodd, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors. This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure. Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.

Although economists believe that the mortgage backed securities would sell at a steep discount to their original values under this scenario, they contend that investors would still recoup more of their outlay this way, rather than going through the expensive foreclosure process. Borrowers could see their monthly costs drop dramatically. According to today’s testimony, the fund might require $20 billion to $25 billion in seed money from taxpayers and, after that, it should self-fund.