Though details on the new plans haven't answered most questions people have, this we do now know: More homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac could be eligible to refinance -- even if they owe more than their home is worth. According to the White House blog, under this part of the plan eligible loans cannot exceed 105% of the current market value of the property. To read the White House Blog yourself, go to http://www.whitehouse.gov/blog/09/02/18/Help-for-homeowners/.
Another part of the plan would help struggling borrowers by modifying their mortgage rates through any participating lender. In theory, Lenders would bring down rates so a borrower's monthly mortgage payment wouldn't exceed 38% of pretax income. The government would reduce rates beyond that, to bring payments down to 31% of the borrower's pre-tax income. Eligible loans can't be large enough to exceed the current conforming loan limits, according to the White House blog. Those limits are $417,000 in most locales but can go to $729,750 in high-cost areas.
Here's the White House's example of how the modification portion might work: Consider the family that has a 30-year subprime mortgage of $220,000, on a house worth $230,000 in 2006. Their interest rate is 7.5%. After an 18% drop in their home value, they're now underwater in that loan: The family has $214,016 remaining on their mortgage, but the home value has fallen to $189,000. Not taken into account is any employment issue in the family, such as a reduction in income if any member was moved from full-time to part-time work. By reducing that family's rate to a government-sponsored 4.42% for five years, they'd save $406 a month, according to White House figures.
The thought is that the money saved is now available for consumption or for savings, both of which are good for the overall economy. But the main intent of the plan is to help prevent foreclosures. It's an important goal, not only for the benefit of homeowners, but for the stability of every other homeowner in the neighborhood. If a house next door to you goes into foreclosure, the value of your house goes down.
If you think you may benefit from these new rules, first find out if you have a Freddie or Fannie loan or if your loan is nonconforming. When more details are released about eligibility, pick up the phone and call your mortgage servicer. Even if you called your servicer before and you were rejected, call back again because the rules potentially have changed. They won't call us and say "We want to help."
Have all your documentation in order, including paycheck stubs and tax files. A word of advice has been offered by Rodney Anderson, managing partner of Rodney Anderson Lending Services, a division of Supreme Lending, located in Plano, Texas. "If you're not getting an answer, write to the president of the bank. If that doesn't produce results, write your Congressman --that's when you get results, it seems like."
If indeed this new plan is more successful than previous ones, certain regions could see more of an effect than others. Areas including California, Nevada, Arizona and Florida have seen home prices tumble more dramatically, where it is thought that the new plan will have a bigger affect on areas that have seen less than a 20% depreciation over the last two years. The Mortgage Bankers Association also notes that the plan doesn't help people with jumbo mortgages.
Some see problems associated with keeping people in homes that are still depreciating -- especially when they're also coping with job losses. Having borrowers continue to pay into a bad loan, even with reduced payments, takes away money they could be using to start over. In the case of borrowers facing job losses, staying in one's home while being saddled with a mortgage can delay the necessary step of moving to an area with more job opportunities. But the Consumer Federation of America called the plan "an important, fresh approach that could make a significant difference in cooling off the housing crisis." Barry Zigas, director of housing policy for the Consumer Federation of America states, "The real test of this plan will be servicers' and investors' willingness to move quickly to adopt its features and take advantage of its benefits."
Joe & Marcie Disher, The Disher Team
REALTORS
Prudential California Realty
Direct: (951) 264-3761
E-Mail:
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Website: www.TheDisherTeam.com
"Doing good is the greatest happiness." - Chinese proverb
