The Fix Is In!
Wednesday, March 4, 2009
The "fix" is in.
Today the details of the Obama Loan Modification and refinance plan were released. You can get full details at www.financialstability.gov. There will be the full details of the plan. We have broken down the big issues here. If you have any questions, let us know.
First on refinancing. There is good news for the homeowner who is upside down is unable to refinance due to a negative change in property value. If your loan is owned by Fannie Mae or Freddie Mac, you are now eligible to refinance. In fact, if a lender has already turned you down for a refinance here, directly from the website here is the way to figure if this refinancing option is open to you:
Do I qualify for a Making Home Affordable refinance? Answer these questions:
- Is your home your primary residence?
- Do you have a Fannie Mae or Freddie Mac loan? If you don't know contact:
- Fannie Mae, 1-800-7FANNIE (8am to 8pm EST).
- www.fanniemae.com/homeaffordable
- Freddie Mac, 1-800-FREDDIE (8am to 8pm EST)
- www.freddiemac.com/avoidforeclosure/
- Are you current on your mortgage payments?
- "Current" means that you haven't been more than 30-days late on your mortgage payment in the last 12 months.
- Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?
This program will help a portion of the market that is unable to get help today.
Second is Loan Modifications. The news is not as good here. In a nutshell if you are behind, your loan is a Fannie Mae or Freddie Mac loan and you can prove your income, you can get your loan modified within the following parameters.
- Fixed Rate loan no higher than the going rates for a 30 year fixed (about 5.5% as of today)
- Interest Rate Floor. Lenders will not be required to lower your interest rate below 2.0%
- The option (which all lenders will take) to capitalize (fancy word for add) any back payments, taxes etc. to the balance of the modified loan. (This will make borrowers more upside down than before)
- Payments will be moved to 31% of your documentable income for PITIA (principal, interest, taxes, insurance and association fees)
The challenges here are many but essentially, the lender can put off a loss by capitalizing the arrears making borrowers further indebted.
Anyone who "fudged" or got a stated income loan will have a tough time qualifying even at 2.0%.
Lenders will be swamped, so good luck trying to get through the process.
This program may help a small portion of the borrowing public. The bottom line though is we are sure that not enough homeowners will be eligible and that the rules are not tight enough for us. Combine that with the threat of the bankruptcy cramdown which will drive rates higher very soon and we have a recipe for more problems, not solutions.
Labels: government announcement, loan modification
posted by Dylan Kramer @ 11:17 AM,
Federal Foreclosure Initiative Review
Wednesday, February 18, 2009
Interesting announcement from President Obama today on the foreclosure crisis don't you think? I believe that if executed correctly, this could be a winner and get us on the road to recovery.
In case you missed it there are four key points to the plan and the biggest point made is that "everyone will not be saved". There are homes that will go to foreclosure, especially investors, speculators (both borrowers and lenders), folks who were pretty sure they could not make the payments but took the loan anyway will not likely benefit much.
But for many, this program will be a lifeline. If the program can be executed and that execution accomplished quickly, that is. Let's break down the four big objectives.
- Four to Five Million upside down mortgages may be eligible to refinance. If the mortgage loan is owned or guaranteed by Fannie Mae or Freddie Mac.
This is huge because currently there is no way for people to take advantage of lower rates available today. This will save people hundreds of dollars per month and lower payments will create an incentive to stay in the home. - Incentives to Modify. The government will be setting loan modification guidelines. This appears to be a statement to the banks who to date, have not shown a willingness to book losses through modification to get with the program. Federal guidelines limiting payments to 31% of existing income will force lenders to step up. Borrowers will have accountability. These guidelines will be official in the next two weeks and I will post them here.
- The government will keep rates low. This promise may be the toughest one to keep. With the admission that up to $200B of the Federal TARP funds may be dedicated to the purchase of Mortgage Backed Securities, the administration is making a statement that they want people to be able to secure mortgage financing at low rates. The question is, will the market agree and keep rates down?
- The threat of the Bankruptcy Cram Down. The carrot, or stick depending on your point of view is legislation allowing bankruptcy judges to "write down" principal balances on mortgages. It appears that this is currently only a threat but if the efforts to modify loans that banks are making don't improve, we will see this enacted and it will not have good results for the banks, or home buyers going forward as rates would rise because of it.
Overall, this effort is rather impressive. The program seems to address some of the critical issues out there today creating an opportunity for people to improve their situation. Also appreciated is the accountability tone. Too often in the foreclosure/housing debate borrowers, banks, investors and Washington have been pointing fingers instead of trying to find a solution. This program could be a great step in the direction of true solutions and answers.
Watch the full announcement right here, on AmericasMortgageBlog.com
Labels: current market, government announcement
posted by Dylan Kramer @ 12:20 PM,