WHICH BOATS? Good news hit the airwaves today about the Stimulus Bill in regards to Distressed Homeowners. SO--What exactly does the term 'assistance for homeowners' mean? I can tell you that is one very long piece of string. The promise of homeowner assistance boils down to helping folks who may have lost their jobs, experienced a business closure, suffered a bankruptcy, experienced serious medical issues, seen their home values tank and cannot sell their homes (without a huge loss) or have otherwise become unable to help themselves climb out of their particular pit since they originally took out their mortgage. Many many of these good people have perfect credit history and have never missed a payment in their lives. They are not, NOT I can tell you looking for a free ride. Life has tossed them the proverbial curve ball.
The promise of homeowner assistance via 'loan modification' is another very long piece of string! Banks themselves don't have clear-cut rules (yet) on who even qualifies for help. The loan modification process is frustrating and time consuming for homeowners who are attempting to negotiate with their lenders themselves. Unfortunately, there are plenty of sharks in the Loan Modification waters if late night TV and the increase in my SPAM level is any indication.
Fortunately, the state of Washington and our State Attorney General has been hard at work on guidelines and budget tools to assess homeowners in trouble. The SAG is proactively participating in the loan modification process due, in part, to their own outrage and successful lawsuit against banks including Countrywide and Washington Mutual for their rampant misuse of the lending laws to help more people find their way into homes they patently could not afford.
THREE GOALS: Today's Plan Unveiled for $75 Billion Housing Rescue
1. Simple Refinancing of Distressed Homeowners--Due to declines in values you may be 'upside down' if your loan is higher than your home value which means you cannot refinance traditionally. This part of the Stimulus Act aims to lower the foreclosure rate and save 4-5 million homeowners by lowering their payments to what they can actually afford. Income and debt will be strictly analyzed to meet traditional banking guidelines based on actual income and actual indebtedness.
This does not mean that people who got into debt irresponsibly will be saved from their bad habits. Each case will be reviewed on it's own merits by the lender that holds the mortgage.
This also does not mean that folks who can afford to refinance will get a dime. Hopefully we will all see that 'helping the least of us' succeed will help our communities to thrive and recover more quickly.
2. Helping Homeowners With Exotic mortgages: While many folks with Sub Prime mortgages have already refinanced or gone under, this part of the plan will somehow pay for a program (yet to be detailed) to help Lenders and home-buyers agree to find a new payment somewhere in the middle of what their rate adjustment would be and what the buyer is paying prior to said rate adjustment. Exotic Mortgage may be defined as a Pay Option or Option ARM, a hybrid rate buy-down that balloons into the stratosphere or a combination of these. The idea of principal reduction is being bandied about here--but payment lowering is the goal here. Expect 40 and 50+ year terms to lower your payment.
WHOA! Do you realize that the longer you pay a mortgage the more you pay in interest over that longer time frame? Do you think for one moment the banks who are getting all this funding to hire more people to negotiate new terms with borrowers are going to GIVE money away? Not a chance. Banks are in business to make money and as Warren Buffet advises "you make money by not losing money". Not losing is what this is all about. It's a loss mediation exercise. Give a little to get a lot.
3. Passage of New Bankruptcy Legislation. This part of the plan (yet to be detailed in full) would allow Federal Bankruptcy judges to write down the value of the mortgage principal (during a bankruptcy proceeding) to the actual value of the home (again those who have lost value in states like California, Florida and Arizona) so the homeowner does not also suffer Foreclosure. This particular part of the plan will be strenuously opposed by the huge banking lobby. Watch carefully on when and if this part materializes, folks.
I predict new twists of this snake. I would love to think our government is able to sufficiently motivate the private banks to make this work for citizens. I have heard from credit counseling agencies that 'some banks' may negotiate a lower principal or rate in order to get a larger stake of your home equity. Oh, and some of the people these banks are hiring as negotiators are paid on comission...which suggests they will have an incentive to help themselves by keeping your loan rate higher.
By the way, Fannie Mae, Freddie Mac and any other lender can choose to modify or refinance borrowers any time they like. HIGHLY unlikely they will call you and offer to lower your payment or interest rate! Considering many folks have 6.5% loans or higher, today's 5%-5.25% range is quite an improvement toward lowering payments. If you recall, Fannie and Freddie are getting approxmiately $200 Billion to backstop their losses. Let's not loose too much sleep over their level of pain here.
DON'T MISS THE BOAT: Pending the dust settling on exactly who is qualified to borrow how much from whom...your local mortgage planner has the best access to best terms so don't miss today's smokin' hot rates! Tighter guidelines have been announced (thanks to Fannie and Freddien and HUD) so don't wait for those new rules to land in March. FHA, for examle will limit 'cash out' loans to 85% Loan to Value, down from the current 95% loan. VA, FHA and USRDA are all raising their credit score requirements. Ouch. Just who will qualify for a mortgage in March remains to be seen.
This writer is hopeful that the Obama team will wake up and smell the coffee to help more follks get into home ownership by revisting the arcane and increasingly irrelevant FICO Scoring system. Yes we can!
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