Americans still asking: What about my bail-out?

10.24.08
By Sarah Beldo

If you are like many Americans, the government's decision to give $700 billion to troubled banks aroused more than a little suspicion.

Sure, the money means that banks may eventually be able to relax a bit and start making loans again, but does it really do anything to help people who are already on the brink of foreclosure?

Now, the government claims it is finally shifting its focus to the little guy.

On Thursday, Sheila Bair of the FDIC told the Senate Banking Committee that a plan is being organized that would offer guarantees to lenders on troubled home loans.

The motive for this move would be to encourage mortgage providers to restructure loans so that homeowners can reasonably meet payments and avoid foreclosure.

In other words, if you are seriously struggling to make your mortgage payments and your situation meets the standards set by the government, your lender could change the terms of the loan to reduce your monthly payments.

"By doing so, unaffordable loans could be converted into loans that are sustainable over the long term," Bair explained.

This may all sound promising at first, but there are still unanswered questions about the scheme. One of them is: will banks actually want to take part in the plan?

Stephen Figlewski, a finance professor at New York University, told Fortune that some lenders may prefer to wait and see what happens, rather than agreeing to reduce mortgage payments - even if studies have showed that restructuring loans is less expensive in the long term.

"Incentivizing lenders to restructure loans is fine. But it's not making them do it," he commented.

There are also concerns that some people were sold mortgages on houses that were so far out of their price range that they would not be able to keep up with payments even if their loan were reduced.

In the end, the only thing that most people can agree on is that some action must be taken to address the current crisis.

The most recent statistics from RealtyTrac show an incredible 71 percent increase in foreclosure filings during the third quarter of the year, compared with the same period in 2007.

According to the report, one in every 475 housing units in America was the recipient of a foreclosure filing during September.

If you find yourself in a difficult situation such as this, you may want to consider seeking the advice of a consumer advocate to help you weather the storm.

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The government says it will help people avoid foreclosure