The most frequent question I hear is: "I actually pay my mortgage on time, what about me?" "What is the government doing to help me?". That is a great question. One positive conclusion I have come to is this: The bulk of Americans are doing everything they can to get by. They are working harder, cutting back and doing what needs to be done in these times. The worrisome question is: how long can this continue? There is only so much the average person can do. So, what about them?
The good news is, our elected officials are trying. The bad news is; we do not know if the policies and programs they implement will actually work. As a country, we are flying without a net. This is an unprecedented time, we have no viable case studies for what happens when our stock markets loses half it's value, home prices plummet, foreclosures soar, and unemployment approaches double digits. You can try to point to the Great Depression, except for our government did very little to help out at that time. We did not have the FDIC, SEC, or Social Security at that time. Those were developed later in the 1930's in large part to help avoid another depression. It's a good thing, because they probably have done just that. Without the FDIC, the banking crisis would be far worse. Imagine what our older generation would do without social security. In the depression, our unemployment rate was at 25%, foreclosures rose to a whopping 50%! I say this to prove 2 points"
- As bad as this is, this is not The Great Depression part 2
- We have no blueprint to follow to fix this
So I regress back to my initial question: "I pay my mortgage, what about me" . You can try to call your mortgage servicer and request a "loan modification". But, wait, you pay your bills- you cannot get one. So what if I stop paying my mortgage to qualify for a modification? You could try, you will take a huge credit hit though. Prior to taking this drastic step, you need to consider all the consequences of this action. Maybe you could refinance? 30 yr fixed rates are available right now below 5%, this will help, right? Not if you are among the masses that is upside down on your mortgage. This group includes almost everyone who purchased after 2004 with a limited down payment. If you are one of the "lucky" few that have a little equity left in your property, stop what you are doing and run, don't walk to your mortgage broker. You could find that you are leaving several hundred dollars a month in savings on the table.
So, let's recap where we are. You pay your bills, but barely. You are upside down on your home, so not only can you not refinance it, you cannot sell it. Everyone else who does not pay their bills is getting their rates and/or loan amounts slashed. So much for being rewarded for fiscal responsibility! There may be help on the way. The Homeowner Affordability and Stability Plan was signed into law on Feb 17th, 2009. This is designed to help make loan modification more attainable and make it possible for upside down homeowners to refinance to a lower interest rate. The key word is POSSIBLE. Starting April 4th, if you have a Fannie Mae loan, you may be able to qualify for a rate and term refinance without an appraisal and lesser documentation overall. Notice the terms I used: "possible" and "may be able". In theory, this will allow most consumers with a Fannie Mae loan to improve their situation. The problem is, it's a theory. We have seen ill fated attempts at a cure in the past (See "Hope for Homeownership"). Time will tell if DU REFI PLUS, will achieve the goals it sets out to achieve.
Here are some program highlights:
- All property types are eligible
- 105% maximum loan to value. There is no maximum CLTV (combined loan to value) Let's say you took out an 80/20 . You should be able to go up to 105% on a rate/term refinance and subordinate your 20% 2nd lien for a CLTV of 125%. The trick could be getting your 2nd lein holder to subordinate.
- Currently the minimum credit score is 580, this will not be a requirement for LTV's below 80%
- Lesser income documentation for both salaried and self employed borrowers
- Appraisals may be waived or exterior-only inspections may be required on certain loans.
So to answer the initial question: "I pay may bills, what about me?" Help may be on the way April 4th. Find out if you have a Fannie Mare loan right here. If you do not have a Fannie Mae loan currently, keep your head up. Common sense says, that if this program is a success, it should be broadened over time. But then again, if common sense reigned supreme, we would not even be having this discussion.
Sr. Loan Officer
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