The government just introduced a slick new website to help consumers figure out if they qualify for the refinancing or loan modification plans underwritten by the new Making Housing Affordable program.  As we discussed in last week's blog, not everyone will qualify for the programs.  On the loan modification side, it's great that a standard formula is being applied but there are drawbacks:

• A payment of 31% of income, though considerably lower than the prevailing percentage in many areas, may still be too high for some families - especially in view of rising unemployment. 
• If the house was more than a family could really afford in the first place, even a modified payment might be unaffordable.
• For homes where the value has gone below the value of the loan - the underwater buyers - there is help only if the loan is not more than 105%  of the home's current value.

Prior to the release of the new plan, there was growing concern that 25% of modified loans were still defaulting and at risk of foreclosure.  The head of the Office of the Comptroller of the Currency, John Dugan, said whether looking at 30 or 60 days delinquencies, re-defaults were increasing and were not leveling off after 6 or 8 months. Defaults rates were on the rise for all loan types yet prime fixed rate loans and sub-prime fixed rate loans have the highest re-default rates.  In general, borrowers were going in default after one payment or several payments.

Prior to the new plan, Shelly Bair, chairman of the FDIC, predicted that over the next 2 years, 4 to 5 million loans will enter foreclosure.  She believed the stakes are too high to rely on lender commitments to apply more streamlined loan modification rules.  Lenders are reporting that more borrowers are also allowing their loans to hit the 90 day delinquent mark so they can take advantage of modification applications.  

The new plan, despite its faults, does address some of Ms. Bair's concerns.  The program will help people who are not in default and requires the lender to comply with the program standards.  Both lenders and borrowers will be rewarded if the new loan works out.

Will the new program prevent foreclosure or just delay it?  Stay tuned for the answer as the months pass and we see what happens with our economy.

At Prudential Americana, we think positively about the economy and about your ability to buy an affordable Vegas home.  Check out our Vegas Real Property website to see the great properties Yonas Woldu and Nebi Adhanom are offering

Also check out our new AskYonas website.  For every real estate problem, I have a solution. Now let's make it happen.