Economic Stimulus plan helping the ones that actually paid their mortgage?

By
Mortgage and Lending with Southern California Mortgage Professional NMLS #254430

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Many of the plan's details are still being worked out and will not be announced until March 4, here is an overview of the plan's main components.

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.



According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

                                                   



As with the rest of the plan, details about this initiative will be released at a future date-including what, if any, credit score requirements will be included.

Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:

  • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
  • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.

The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Again, the government plans to unveil the final details of the plan on March 4, 2009. For now, you can download a sheet of common Questions and Answers produced by the government at: www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdf

Let's hope this helps some of those who deserve the help and is not just  smoke and mirrors

http://activerain.com/blogsview/857442/Smoke-and-Mirrors

 

 

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Rainmaker
115,185
Kimberly Thurm
Berkshire Hathaway HomeServices KoenigRubloff, Naperville, IL - Naperville, IL
Broker / Relocation Consultant ABR, CRS, GRI, SFR

Thanks Colleen, good information and love the Q & A.  We have a few sellers and Realtors that are waiting to see if the sellers are going to be able to work their particular situation out or if we are going to continue with their short sale. 

Feb 20, 2009 01:58 PM #1
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Colleen... thanks for putting this together.  I haven't had time to read any of this. What cracks me up are these statements by the gov't for such programs.

  • The Homeowner Affordability and Stability Plan - It states that it will help those with less than 20% equity. First off, I love the idea of helping those that are underwater. But anyone with 19% to 6% equity could actually do a FHA loan, because you can go up to 97.75% of the value of the home. Maybe they need to work on the jumbo loans. But other than that, the gov't needs to understand what kinds of mortgages are out there, in my opinion.

And then this was stated...  "The refinanced loan, however, cannot include prepayment penalties"

This is what should actually be included. Is that boneheaded or not. Those that have prepayment penalties are probably the ones with the higher or highest rates. Sorry, but who thinks of these plans?

 

Stability Initiative Plan -   I hope they have details about this plan. So, a person that I got approved with a 41% front end ratio, because of the automated system, because that person had very high credit scores, great credit, and lots of assets after they closed, can still do this?  lol 

Question...  what is the method going to be for those that are current on their mortgage, yet are struggling?  You can't have more than $1,000 in checking and savings? 

 

Overall, I just see so many holes in these plans. I am all for helping them and you have outlined some good stuff. But were these plans written by a blind man, who can't see his own writing?  As stated, I hope they have some details covering what I mentioned. And who is paying for all of this?  Oh yea, us, even those struggling. hhhhhmmm 

On a side note.. I was not being negative to what you stated, since this is coming directly from the gov't. I am questioning the plans themselves.. thanks

jeff belonger

Feb 20, 2009 04:41 PM #2
Rainmaker
510,060
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

I will be very interested to see how the lenders interpret this. There is a LOT of people who want to stay in their homes and ride out this slump, but need to refi so they can afford to stay.

That piece of the stimulus is a home run!!

 

Feb 21, 2009 12:51 AM #3
Rainmaker
275,571
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

"Smoke and mirrors" a la the last two .... let me tell you I stick to my guns that our government will mess up anything they touch. Almost everything in this plan is a huge attempt to socialize this nation and even insinuating one group of people deserves help over another group of people is leading toward re-distribution by proxy and is not in the best inteerest of the future of the nation. This is The Democrat Voter Retention and Party Domination Bill. Write down this date and let's revisit this in a couple of years: This will end in in increased interest rates, increased housing prices and increased national inflation. Too late to use my idea, we're spiraling into deeper recession and rocketing into socialism. (New government's tactic: Cause panic, feed fear, force inadequate solutions that erode profits for private enterprise and reward the poor and eat the rich.)

Feb 21, 2009 01:36 AM #4
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

@ Ken.... excellent comment as usual.  I think point on. I guess I did beat around the bush in my comment, instead of saying "smoke and mirrors"....  lol   Hence why I was semi laughing at some of the statements that the gov't made.  DO they think many of us can't read the writing on the wall?

Jeff Belonger

Feb 21, 2009 02:45 AM #5
Rainmaker
28,501
Colleen Craig
Southern California Mortgage Professional - Santa Clarita, CA
Socal Mortgage Pro

Tom, yep it will be interesting to see how this plays out.

Ken - thanks - great opinion!

Jeff, I agree - who is making these decisions and think it will help?  Most of california is under water by close to 50% not 5% so it may help a select few like the Hope for Homeowners program that was supposed to help so many - but investors didn't participate. 

Since we're giving money away...... How about giving a free tax credit for double the amount to reward everyone who got second and third jobs, didn't charge their way into oblivion, and actually saved their money and paid their bills and mtg on time?  I'd like a 16,000 bonus for that!  How about in order to qualify for the FREE tax credit 8,000 (our money)  they have to go through a course, & pass a test on what a mortgage is, how it works how to budget and sign and affidavit that they UNDERSTAND completely what they are signing now and will be sure to on any future loans.  Just my 2 cents.

 

 

Feb 21, 2009 03:15 AM #6
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Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Colleen -  Thanks for the easily digestable run-down of this bill.  I won't even get into the politics of this, as I think both sides need an enema. 

I do wish they'd open up credit to Seasoned Real Estate Investors, as I've mentioned.  That would eat up a lot of the Inventory and would be a step in the right direction, in my opinion.  Alas, we have to play the cards we're dealt.

Feb 21, 2009 12:06 PM #7
Rainmaker
76,436
Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

Colleen, nice post - very informative.

 

(I received your message on my last post and will definately pass on your information to Carolyn)

Feb 23, 2009 12:45 PM #8
Rainmaker
99,085
Gerry Suarez Jr.
Jet Home Loans NMLS 1660135 - Maitland, FL
FL Mortgage Guru

I like your $.02 Colleen. When are we going to provide incentives for desired behavior instead of giving people a free ride?

I do realize and deal with people suffering unfortunate circumstances every day but it's the hard working, tax paying, conservative spender that will be shouldering this burden, and that really sucks.

Great post though. Thanks for making the info actually make sense!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Feb 23, 2009 02:32 PM #9
Rainer
29,656
Jay Williams
Greenville, NC - Greenville, NC
Mortgage Loan Officer - Getting You The Right Loan

Colleen, I would echo Jeff's comments regarding debt ratios. If the lender is going to have to change the payment down to 38% DTI with an incentive to further reduce to 31% then you can expect loan program guidelines for new loans to mirror the modifications. If not, who in the right mind will make a new loan with the threat of being "forced" to modify in the future.

Ken's comments on the government having the unique ability to screw up what they are involved with is most appropriate.

Good post for informing the public as to what is coming.

Jay

Feb 24, 2009 03:04 PM #10
Rainmaker
28,501
Colleen Craig
Southern California Mortgage Professional - Santa Clarita, CA
Socal Mortgage Pro

Jay,

Exactly.

And I remember the days when conv ratios were 28/36 and there was no automated underwriting......then we got to the point where no one knew how to acutally qualify anyone without "running it through" to see what THE COMPUTER said.......Personally I see what they tried to do with the credit scoring model - but like everything else, it can be manipulated and has really aggravated me that people who never had a late in their life but may use their cards for business have a lower score than someone who learned how to manipulate their bad credit score  by adding a stranger -etc  It really is disturbing.  It will definately be interesting to see what unfolds.........

thanks for the comment!

Colleen

Colleen

Feb 24, 2009 03:15 PM #11
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Colleen Craig

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