The Obama Administration stepped in to bail out homeowners facing possible foreclosure. The Making Home Affordable Plan was introduced and it was expected that as many as 7 million to 9 million homeowners would be able to save their homes from foreclosure. However, the program failed to jumpstart as lenders were not willing to cooperate. Studies reveal that as of June mid, as many as 50,000 homeowners have enrolled for the “trial modification” programs.

Taking a step further, Obama introduced “Vanilla loans” for the homeowners. If Obama’s proposal is accepted, homeowners will be offered Vanilla loans or plain 30 year traditional fixed-rate mortgages. However, a homeowner can also opt for the other loans that may include adjustable-rate mortgages but the risks associated with these loans will also be communicated to the homeowners.

Scenario:

A couple from Phoenix opted for loan that turned out to be bad and it didn’t serve their purpose. The couple decided to refinance their existing mortgages but this wasn’t possible because they had no equity left in their house and moreover due to increase in the adjustable-rate mortgage, making monthly payments wasn’t easy. This compelled them to lose their house.

The main objective of Obama’s Vanilla loans is to protect such homeowners who lose their homes due to their ignorant nature. It has been observed that there are many homeowners that fail to realize what they are actually opting for.

The President expects to face opposition in this regard as critics are complaining that the President’s proposal is “Un-American”. Few homeowners think that Obama’s Vanilla loans would heavily regulate the US mortgage market. A financial expert sited the example of mortgage market in Germany and France where it is highly regulated. There are many homeowners who are open to Vanilla loans as the process of taking out a mortgage becomes simple and easy.

As far as mortgage brokers are concerned, the proposal didn’t go down well with them because it would affect the commission they used to receive for selling adjustable-rate mortgage to homeowners.