The $75 billion foreclosure prevention program announced by President Obama may go a long way to helping millions of distressed borrowers and to stopping the housing market's downward spiral, experts said. The multi-pronged plan, which calls for modifying loans for borrowers both at risk or already in default and for allowing those with little or no home equity to refinance into more affordable loans through interest rate reductions, has made some strange bedfellows.
The plan has two main pieces: refinances for conforming loans, and modifications for subprime and exotic loans. The refinance piece is designed to help 4 million to 5 million "responsible homeowners."
Who are these responsible homeowners? They:
* Haven't fallen behind on their monthly payments.
* Owe more than 80 percent of their homes' currently appraised value.
* Owe no more than 105 percent of the currently appraised value.
* Have mortgages that are owned or guaranteed by Fannie or Freddie.
That last requirement effectively imposes a limit on loan amounts. Few mortgages for more than $417,000 will qualify for refinances because that is the conforming limit. Unlike the previous measures, Obama's plan uses government funds to provide incentives to borrowers, loan servicers and mortgage investors to modify loans to affordable monthly payments. And it offers help to at-risk borrowers before they stop paying. The administration says it will help up to nine million people avoid foreclosure.
The plan calls for servicers to reduce interest rates so that a person's monthly obligation is no more than 38% of his or her income. Then the government would kick in money to bring payments down to 31% of the homeowner's income. It also gives servicers money for modifying loans, and additional funds if borrowers stay current or are helped before they fall behind. Finally, it is developing a $10 billion insurance fund that will pay mortgage holders based on declines in a home price index.
Sources: Bankrate.com; CNNMoney.com
REAL Trends Comment: I don't know about you but I am glad to do my part to assist homeowners who bet that home prices would go up (like the rest of us) yet found themselves in a losing position when the market declined. In fact I am going to stop making my payments because I qualify and I think that the decline in my income and my home value is not my fault and someone else should pay for my misfortune. In fact I also have some bad bets I made in the stock and bond market so I think the Federal government should arrange a bailout of that as well...like giving me the difference between what I paid and what the investments are worth now.....
In yet another bold move, the Feds are moving to fix a problem that is already working its way through the system, another the "cows are already out of the barn." In California, Phoenix and Las Vegas, unit sales are roaring with first time homebuyers and investors purchasing large numbers of foreclosures. This is the start of a true recovery. Loan modifications throughout the country have been a bust. And they will continue to do so. Then comes the ability of judges to "cram down" the loan balances of existing mortgages if someone is really affected. Next come investors and bank increasing the prices of credit for everyone because some third party can change the mortgage simply because they "feel" the pain of the homeowner and think it is fair. Imagine our "impartial" judicial system now controlling whether your mortgage balance is the right size for you...after the fact.
Now return to part one...as long as it's good for some lets all jump in.
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