I recently wrote a three-part series on delaying or avoiding foreclosure in North Georgia (which posts likely apply anywhere in the country, not just Georgia).  The third part dealt with various government-backed initiatives and programs, which provide everything from counseling to possible principal "deferral" or even principal reduction.

The variety of programs, and the often very detailed criteria of each, make any kind of brief "synopsis" very difficult, particularly since they have a tendency to change very quickly, but the good news is that at least there are options of some sort for distressed homeowners . . .

Sort of.

The criteria for many relief programs eliminate a large percentage of struggling homeowners right off the top.  Availability depends on the lender, the extent of delinquency, debt ratios, and any number of other criteria.  Some involve debt "forgiveness" (but recouped at a later date), while others are mere debt restructuring, credit counseling, or some other short term relief.

In fact, at about the time I published the final post in the series, Fannie Mae and Freddie Mac announced they would be offering a temporary "stay" on foreclosure proceedings over the holidays.  I believe a couple of other lenders are doing the same.

I'm sure this is a relief for many, particularly at this time of year.

It also leads to a bigger question . . .

Are these actual solutions, or a finger in the dike? 

Not that there is any real choice of course.  Something is better than nothing, and I'm not criticizing the efforts at trying to find solutions.  There is no perfect answer, short of an unrealistic across the board loan forgiveness for everyone.  But the fact that these might be the only options right now, doesn't mean there willl be no future outcome, or that we should ignore whatever that might be.

• Many of the current surge of FHA refinances will be faced with a shared equity on resale or refinance (50%-100%): How will this affect transferees, divorcees, and others needing a quick sale down the road, particularly if values continue to decline?  I see many people being locked into their current homes for longer periods, possibly impacting overall home sales for a while to come (but still better than foreclosure right now).  These homeowners need to keep the equity issue in mind in all future financial decisions.
• Loan modification is a good way to reduce monthly payments and make a home more affordable, but where these are based on extended repayment periods and therefore reduced principal paydown, there is again an equity issue of potentially insufficient equity to sell the home any time soon, again hobbling the homeowner to that home for some time (not to mention the extra cost of paying on a 40-year versus 30-year loan!).
• In my mind, Temporary interest rate reductions are the new ARM -- when they reset at the end of relief period, will we once again see a surge in foreclosure activity? Or will we be better educated / prepared the next time around?
• Principal reduction recaptured on the tail end of the loan is another of the solutions that affects the ultimate equity position of any homeowner, essentially forestalling the current problem, while possibly resurrecting it down the road.
• In the tightened financing requirements, widespread blotches on credit are going to continue to bench a lot of homebuyers for the next couple of years, further hurting recovery efforts.
• A temporary hiatus on foreclosures is a welcome break I'm sure, for not just homeowners, but all those involved in the process as well.  The question here is, what happens February 2009, as the annual pre-spring crop of sellers is hitting the market . . . accompanied by a 2-3 month backlog of foreclosures (Fannie and Freddie alone account for roughly 20% of all delinquencies, so no small backlog)?  What effect will this have on any incipient spring recovery of the real estate market and home prices?

It seems that all the "fixes" of right now, could possibly simmer for a couple of years, only to start steaming again if the underlying issues aren't resolved.  Perhaps a strong economic recovery and decent appreciation in home values will keep the pot from boiling over altogether, but while homes are worth less than what's owed, unemployment is high, and real estate is sluggish, most of the patching is cosmetic.

But, it's what we have and we have to do the best we can with it.  The problem isn't going to just go away on its own.

What is essential however, is that homeowners understand the rules, and shortfalls, of whichever option they end up using to avoid or forestall foreclosure.  There is no "Get out of Jail Free" . . . only a Chance®, maybe a Community Chest®, if they're lucky.  Let's not repeat the mistakes of past years in blindly pushing forward without providing adequate counsel to those who need it . . . or in failing to anticipate future consequence of today's actions.