Obama Plan ............... New Loan Modification Program

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

The Homeowner Affordability & Stability plan was released by the Obama administration on Wed March 4th.  There were two major parts of this plan that affect the Mortgage Industry.  The first part of the plan is a modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure.  The second part of the plan is a refinance program for existing Fannie Mae or Freddie Mac loans.

While our Executive Vice President at McCue Mortgage, Kim Neilson and others are still assessing the details of the Fannie Mae/Freddie Mac plan to determine our next steps, they have summarized it to a point that would make it more understandable to rest of us, and I will sharing this in two blogs.

The first part of the plan that as I stated above is the modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure, which states that:

  • Existing mortgage must currently be a Fannie Mae or Freddie Mac loan.
  • The mortgage loan is delinquent, or is expected to go into default soon.
  • Borrowers must occupy property as primary residence
  • Borrowers must provide hardship documentation.
  • Borrowers must provide income documentation and evidence the monthly mortgage payment (housing ratio) is greater than 31%
  • If the housing ratio is more than 31%, the Servicer will modify the terms of the loan, to reduce the housing ratio to 31% by:
    1. Lowering the interest rate, but the minimum rate (floor) is 2%.  The adjusted rate will be in effect for the first 5 years following modification, and then will increase by a 1% annually until it reaches the original rate.
    2. Extending the term up to 40 years.
    3. Provide principal forbearance which will later be paid back in the form of a balloon payment that will be due upon the earliest of the following:
      • Sale of property
      • Payoff of the loan
      • Maturity of the loan.
  • Servicers will receive compensation of $1000 or $500 for each completed modification.
  • A borrower whose monthly payment is reduced by six percent or more and make on time payments will receive $1000 principal reduction for up to five years.

I will end this post by stating that while I am sharing this information about the provisions that are contained in the Homeowner Affordability & Stability plan that became effective March 4th., that it does not mean that I am in favor of this, or believe that it will help us get out of this mess that we are in, because I don't believe that. I think that this plan just like all the others before it will help very few if any, and is more smoke and mirrors then anything else.  But I have provided this information so that those of you reading this can have a better understanding of it, and help you come to your own conclusion.

I will cover the second part of the plan that I stated above "refinance program for existing Fannie Mae or Freddie Mac loans" in my next post.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Isaac E. Chavez 03/10/2009 12:01 PM
  2. Bridget Cella 03/10/2009 02:40 PM
  3. George Wilson 03/10/2009 02:56 PM
  4. Kristina Yorke 03/10/2009 03:27 PM
  5. Melissa Gootee 03/10/2009 05:23 PM
  6. Andy Parker 03/10/2009 06:35 PM
  7. Chip Jefferson 03/10/2009 11:11 PM
  8. Fred Chamberlin 03/11/2009 12:43 PM
Topic:
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Dennis it is probably a little of both, and I agree with you on the way to take control, and your solution for this problem.  Time we start learning from the past.

John, there is a good good chance that they will be even in bigger trouble 5 years down the road.

Julie, I know that many of the loans have been bought by Fannie, Freddie and FHA.  How many I am not sure, but the way out of this is to let the market take its course, the more we mess with it the longer it is going to take.

George, thank you.

Anja, I agree it should be where they start.

Paul, I am afraid that you might be right about your comparison of this program and the Hope program.

 

Mar 11, 2009 12:56 AM #85
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Michael I fully agree!!!

Teresa, and that might just be the bottom line.

Dean going to the well has not helped yet, I don't think it will be the answer no matter how many times we go there.

Laura, glad that you were able to use this information.

Neal I don't think it will take very long to get an answer to that question.

Bruce & Mary those are my feelings as well.

Mar 11, 2009 01:15 AM #86
Rainer
179,089
Mark MacKenzie
Phoenix, AZ

George,

I like your disclaimer, "it does not mean that I am in favor of this, or believe that it will help us get out of this mess that we are in, because I don't believe that. I think that this plan just like all the others before it will help very few if any, and is more smoke and mirrors then anything else".

I have found myself writing this same ting every time I talk about Washington's proposals. :)

Mar 11, 2009 01:44 AM #87
Rainmaker
163,366
Suzanne Sands
Pavao Real Estate - Somerset, MA
Somerset MA Real Estate

Hi George,

Thanks for the info on this, I knew I would find it here! :)

Mar 11, 2009 02:42 AM #88
Rainmaker
291,773
Darrell Walters
W. Darrell Walters - Newnan, GA

It's interesting to me that the Treasury wrote 17 pages of specifics for loan modification detailing exactly how it was to work and yet only a brief Q&A for refis. They then put guidelines for the refis into Fannie and Freddie's hands.

Mar 11, 2009 02:47 AM #89
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Mark, I did not want members to think just because I was providing a summary that I agreed with, and a disclaimer clears that up quickly.

Suzanne glad that I can be a source of information for you.

Darrell, my second post on this will be on the Refi component and maybe that will provide some added information for you.

 

Mar 11, 2009 07:18 AM #90
Rainer
51,106
Omega Omega
Omega - Glendale, CA

Big George - since nothing will work or get the numbers publicized - what should we do????

Cheers

Mar 11, 2009 07:33 AM #91
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Fred, unfortunately sometimes the best thing to do is to let things run their course, and let the market do its thing.  Every program so far has only contributed to making maters worst in my opinion.  Most of those who are have troubled mortgages will end up defaulting no matter what, all these programs have do so far is to delay that.

I have participated in several local seminars the were promoted by the state to try to help people with some of the past program FHA Secure being on of them.  After spending countless hours of listening to people pour out their hearts, and crying, and not being able to do anything for them, because these program had guidelines that they could never meet. I have come to the conclusion that it more cruel to give them the  false hope of the past, then to just help them face the fact that they took on more then they could pay for.

Mar 11, 2009 08:25 AM #92
Rainer
71,384
Patt M. Judd
First Realty Company - Cookeville, TN
Realtor - Your Cookeville Connection

I agree you this last statment. Most people with a forclosures problem in my state are in the same boat, they took on more then they could pay for. Thank you for your help Patt

Mar 11, 2009 09:01 AM #93
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George - You are one of the mortgage expert who provides informative motgage info to your fellow Realtors.  It is appreciated.

Mar 11, 2009 09:10 AM #94
Rainer
16,257
Paul Begemann
Attorney Paul H. Begemann - Hamden, CT

George, good summary but I think you are wrong on this program being for Fannie and Freddie loans - the loan refinance program (where people can go up to 105% LTV to refinance an existing Fannie or Freddie loan) is for Fannie/Freddie borrowers only - the loan modification program you are discussing is for lenders who have taken TARP funds, and hopefully other lenders also.  See my blog post http://activerain.com/blogsview/970159/Details-of-Housing-Rescue-Plan-coming-out and  the links I have posted there.  Maybe I am mistaken, but all I have read says the refinance program is limited to fannie/Freddie borrowers and the other loan modification program is not.

Mar 11, 2009 01:41 PM #95
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Patt, thank you for sharing that.

Jennifer, thank you, I really appreciate that coming form you.

Paul, you might be right I will double check that with my people tomorrow.

Mar 11, 2009 01:46 PM #96
Rainer
14,609
Diane Dames
Broker Associate & Leasing Consultant@ Lions Share Realty - Victorville, CA
The Real Estate Chick

Hi George,

Great information however Paul is correct. The loan refinance is only for loans that are securitized by Fannie Mae & Freddie Mac. The loan modification part of it is open to all homeowners regardless who backs their loan.(provided they qualify under the guidelines) Here is the link that provides that information. (it is #15) Hope this helps!

http://financialstability.gov/docs/borrower_qa.pdf

 

 

 

Mar 11, 2009 02:38 PM #97
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Diane, thank you for clarifying this.

Mar 11, 2009 03:12 PM #98
Rainer
51,106
Omega Omega
Omega - Glendale, CA

Hi again George.  So, let me get this right...... if your neighbors house is on Fire - let it burn down.......or if your friend is drowing because he feel in the lake and forgot to tell you he couldn't swim - let him drown????

C'mon - you appear to be a person with solid experience - What is your solution to getting us out of this mess???  The easy part is reporting the incident.  :)

Mar 12, 2009 04:18 AM #99
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Fred you keep on ending your comments with the same question, which will lead to the same answer from me.

The situations that you present in the beginning of your comment are not even remotely close to what is happening in the housing market in MOST cases.  The burning house or the drowning could maybe be applied to someone who has lost their job or is out of work because of health reasons, for those people I have already state that something should be put in place for.  But to equate someone who willingly jumped in the ocean knowing that he can't swim and expect me to give up my life trying to save him, isn't going to happen.  And my comparison is closer to what is happening then yours.

Mar 12, 2009 04:37 AM #100
Rainer
51,106
Omega Omega
Omega - Glendale, CA

Thanks George - I did't write the blog YOU did!!!!  Although interesting my simple question was since you brought up an interesting topic - WHAT IS YOUR SOLUTION FOR FIXING THE MESS???? since you stated the proposals on the table will offer little, if any relief.

Cheers

Mar 12, 2009 07:35 AM #101
Rainer
48,656
Tucson Real Estate Experts Anne McKechnie
Coldwell Banker Residential Brokerage - Tucson, AZ
Previews Property Specialist

Thanks George for the very concise information. We have three years of inventory in one zip code here as the medium price point is higher and over 500,000 ...it will not help that many people

Mar 16, 2009 06:42 AM #102
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
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Anne & Eddie, my youngest brother lives in Tucson, and the price of houses in his nieghborhood have dropped so much that there is no program that is going to help him.  Some are just going to have to ride this out.

Mar 16, 2009 07:34 AM #103
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Konnie Mac McCarthy
McLean, VA
Associate Broker - VA & MD

here is the thing if you go to the government website...it has the faqs... I called my mortgage company just to put it to the test..and they told me I was not eligible because I was current and that my rate was already good 5.125%..

May 14, 2009 12:56 PM #104
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