Mortgage bail-out?

President Bush signed the ballyhooed mortage bailout bill, and while the law does bail out Freddie Mac and Fannie Mae, it's lukewarm relief at best for distressed homeowners. Why?

Because the lender may rework the loan through the Federal Housing Administration. There is no requirement that the loan be modified, even if the borrower meets the standards under the law. All the law does is provide a structure in which the new loan can be made at the lender's option.

It remains to be seen how many lenders will avail themselves of this program. As long as there is a greater financial incentive for them to rework the loans, this may work. The only carrot being offered here is the possibility that the borrower can perform under a new fixed mortgage where they could not perform under the old (presumably ARM) mortgage. In cases where the problem was not the interest rate but rather the amount borrowed, the new law will give no relief. Folks with "too much house" won't be helped by this law.

See also http://news.yahoo.com/s/ap/20080730/ap_on_bi_ge/mortgage_relief_q_a