Whether you come to love or hate the new administration for the economic proposals it champions, the hope is that all sides in the complex foreclosure crisis will get a fair hearing. The signs are that atmosphere in Washington will be a lot more open to discuss some fresh alternatives to approach the problem. Here are some of the current plans under review - and this is even before the new administration has put in their two cents.
Bankruptcy Law Changes
First mortgages are currently exempted from the bankruptcy process, a glass half empty-half, half full deal for homeowners whose loans exceed the market value of the home. The new proposal would require a borrower to contact his lender 10 days before he files bankruptcy to allow time to work out a modification. If the two sides cannot come to terms, the bankruptcy judges could adjust the loan balance to fair market value, cut the interest rate, and extend the loan as part of a court-ordered five year payment plan. Considered a "cram-down" by the lending industry, lenders have long opposed this approach but Citigroup and the National Association of Home Builders recently indicated they would support a version of it. However, this approach might not help prevent foreclosure when the balance far exceeds the ability to pay.
FDIC Plan
Plans such as Hope for Homeowners aimed to standardize the loan modification process and bring down the borrower's mortgage-to -debt ratio. That particular plan has not been not very successful so far as it is voluntary for lenders and contains insufficient incentives for lenders to participate. The new plans would use Troubled Asset Relief Plan (TARP) funds to pay lenders $1,000 for every loan they modified to bring the mortgage within a 31% debt-to- income ratio. Lenders would achieve this by first reducing interest rates, then extending maturity to 40 years, then deferring principle. Though the borrower does not pay interest on part of the loan, he must repay the full balance when he sell or refinances the house.
Hope for Homeowners
Aside from lack of incentives, lenders felt that Hope for Homeowners was bogged down in restrictions. TARP revisions will lessen loan losses for refinancing borrowers into FHA loans.
GSE/FHA Loan Limits
FHA loans are becoming the loans of choice for first time buyers. Loans limits for Freddie Mac, Fannie Mae, and FHA loans are likely to be restored to their previous high of $729,750. This will make these programs useful financing options in high priced markets.
Tax Incentives
Plans are in the works for $7,500 tax credits for all buyers, not just first time home buyers, as well as mortgage interest deductions for taxpayers who don't itemize and those who rent out vacant property.
Lower Mortgage Rates
Both congress and the Federal Reserve are considering plans to offer guaranteed mortgages as low as 0- 2.00% to encourage home buying.
What might stand out from a quick review of list above is that none of the proposals will help some current homeowners who cannot qualify to refinance because their home's value has decreased so much or whose housing problems are now temporarily compounded by job loss.
Looking for a new Northampton county home with great financing? Check out our Don Wenner Homes website to view our inventory of homes
Comments(4)