A Bold U.S. Plan to Help Struggling Homeowners
Posted on March 30th, 2010
Posted by
Carlos LaSalle
David Streitfeld from the New York Times reports on new government initiative that, on the face of it, sounds good. The new program (I’m not quite sure what acronym they’re going to throw at it!) will target those that are behind in payments but also those that own a property that is worth less than what is owed. The plan has a provision that allows for the principal reduction of the mortgage.
The article points out a very nagging fact, “None of these programs have the force of law, and lenders have often seen no good reason to participate.” This has always been the Achilles heel of the residential mortgage meltdown. The government can’t enforce the program. They can probably encourage the lenders that took TARP money to adopt it. The problem that the government will face is that the vast majority of mortgages are owned by investors and investors aren’t bound to do anything with respect to the notes that they own.
One aspect of the new program that will effect home owners is, “(that the government) had previously planned to give homeowners that sell their homes rather than let them go into foreclosure a “relocation assistance” payment of $1,500. The plan announced on Friday increases that amount to $3,000.”
Whatever the final plan looks like, I hope it helps the homeowner.
A Bold U.S. Plan to Help Struggling Homeowners
By DAVID STREITFELD
The New York Times
Published: March 26, 2010
Once again, the federal government is adding to its arsenal of programs for troubled homeowners, seeking to help those who urgently need it while neither angering nor creating perverse incentives for those who do not.
The new measures, announced by financial policy makers at the White House on Friday, are among the boldest to date. They are aimed not only at the seven million households that are behind on their mortgages but, in a significant expansion of aid that proved immediately controversial, the 11 million that simply owe more on their homes than they are worth.
Some of these people, if the government plan works, will emerge with a house whose payments they can afford and whose new mortgage reflects its market value. Unlike many previous modification recipients, they would presumably be less likely to re-default, helping to stabilize a housing market that remains queasy.
“We’re walking that delicate balance to make sure these solutions are sustainable and not temporary,” said David H. Stevens, commissioner of the Federal Housing Administration.
It is a balancing act in numerous ways. If the plan falls short — and some experts were skeptical on Friday — the Obama administration could find itself having to start over yet again in six months or a year.
“The housing market is the Vietnam War of the American financial system,” said Howard Glaser, a housing consultant. “The federal government is in so deep, they have to keep ramping up to find a way out.”
The latest programs, together with foreclosure assistance efforts already in place, are aimed at helping as many as four million embattled owners keep their houses. But the measures, which will take as long as six months to put into practice, might easily fall victim to some of the conflicting interests that have bedeviled efforts to date. None of these programs have the force of law, and lenders have often seen no good reason to participate.
To lubricate its efforts, the government plans to spread taxpayers’ money around liberally. For instance, it had previously planned to give homeowners that sell their homes rather than let them go into foreclosure a “relocation assistance” payment of $1,500. The plan announced on Friday increases that amount to $3,000.
All told, the new measures are expected to cost about $50 billion. The White House was careful to stress that the money will come from funds already set aside for housing programs in the Troubled Asset Relief Program. There will be “no additional commitment of taxpayer dollars,” Michael S. Barr, an assistant secretary of the Treasury, said at the White House briefing.
Here is what the $50 billion is supposed to buy:
The simplest component of the plan involves assistance to unemployed homeowners. Mortgage companies will now be encouraged to reduce payments for at least three months and possibly six months while the homeowner pursues a new job.
To be eligible, borrowers must submit proof they are receiving unemployment insurance. The new payments will be 31 percent or less of their monthly income. The missing money will be tacked onto the loan’s principal.
A second and more complicated program is a requirement that mortgage servicers consider writing off a portion of a borrower’s loan to get it down to a more manageable level.
Borrowers in the government modification plan who owe more than 115 percent of the value of their home and are paying more than 31 percent of their monthly income toward the mortgage are eligible. The write-downs are to take three years, with the borrowers in essence being rewarded for making their payments on time.
The third major new program strays the farthest from the government’s previous approach. Borrowers who owe more on their homes than they are worth will get a chance to cut their debt — providing the investor or bank who owns the loan agrees.
Mr. Stevens of the F.H.A. said the program was “for responsible homeowners who through no fault of their own find themselves in a situation of negative equity.”
There is no official requirement that these homeowners be in distress, but it would probably make the investor more receptive to a deal. Whether homeowners will scheme to get into the program is one of the big uncertainties.
The investors will write down the loans to 97.75 percent of the appraised value of the property, at which point the F.H.A. will refinance them through new lenders. The F.H.A., which currently insures about six million homes, will insure the new loans as well.
If the homeowner has a second mortgage, as many do, the total value of the new mortgage can be as much as 115 percent of the value of the property. The F.H.A. will spend up to $14 billion to provide incentives to the banks that service the primary loan as well as the owners of the secondary loans. Some of the money will also provide additional insurance on the new loans.
Numerous parties will have to work together to make these deals fly. The primary loan might have been bundled into a pool and sold to investors during the housing boom. The investor must agree to cut the principal balance for a deal to work, and any bank holding a second mortgage on the property would have to go along, too.
The only incentive for the first lien holder is a quick exit from a loan that might ultimately default. Payments for second lien holders will be made on a sliding scale.
Early reaction to the refinance program among lending groups was less than enthusiastic.
“The magnitude of this program will likely be measured in the tens of thousands rather than the hundreds of thousands of borrowers,” said Tom Deutsch, executive director of the American Securitization Forum. Both banks and investors belong to the forum.
The Mortgage Bankers Association, which represents the banks that service the primary loans and own outright many of the secondary loans, warned that “each servicer will need to determine whether this is the best approach to help the individual borrower.”
The new proposals irked many people, who flooded online forums Friday. Some said those in trouble deserved their fate. Others asked why the government was propping up housing prices when many renters still could not afford to buy a house. And some wondered about the message these rescue plans were sending to those who resisted the housing bubble.
Dave Juliette, a software worker in Pittsburgh, is in the last group. He paid off his loan eight years ahead of schedule and now owns his house free and clear. “I’m a homeowner in a more genuine sense of the word than many of these people with mortgages,” Mr. Juliette said. “But I won’t be seeing a dime.”
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Actual Foreclosure Relief, the Short Sale
Posted on March 30th, 2010
If you discover yourself being one of the millions of people that are in search of foreclosure relief, you need to completely understand the situation that you and your bank are in. There are several rumors in Scottsdale, Arizona about the banks intentions with regards to foreclosure of your home. Amongst the most widespread legends, one that is entirely inaccurate, is that the bank wants your house. The truth of the matter is, the bank wants to give you foreclosure assistance. Why? Simply stated, the lender is in the commerce of money, not in the business of real estate.
There goal, as it was when they first contracted to loan you money, is to regain that money WITH INTEREST. So, foreclosure relief is something that the bank is interested in also. Regrettably, they do not have the funds to relief you find foreclosure help. Choosing to ignore the bank is certainly the farthest you can get from finding foreclosure help.
Another commonly mentioned idea is that the bank in Scottsdale, AZ will not take your money after a certain amount of time will pass. Yet again, the bank wants you to get foreclosure help, but they also want your money. While they would prefer that you pay one lump sum to bring your loan current, there are quite a few noted situations where they can offer you foreclosure assistance by modifying your loan conditions to make payments more appropriate for you existing economic state. Still, if they think that it is in their best gain to not give you foreclosure help, and merely foreclose on your home, they understand that they can recover money by selling your house after foreclosure.
Some people assume that the best foreclosure assistance is to file for bankruptcy. Whilst this can offer some foreclosure relief, it normally only freezes the foreclosure procedure for a period of time. During that period you can search out another way of foreclosure relief.
Perhaps the finest foreclosure relief obtainable to you is the short sale. With a short sale, you get foreclosure help by avoiding foreclosure all together. In the short sale method, you place your home on the marketplace and get an offer in hand. Then, with offer in hand, you go to the lender and describe to them that the home is only worth the value of the proposal. Since the value of homes has radically decreased over the past several months, chances are that the new offer will not cover the present loan balance. However, the lender will be inclined to agree to the offer and forgive your remainder of the balance because they understand that they will not get nearly as much money if they have to foreclose on the home and sell it in foreclosure.
The short sale is the finest option available to anyone that is looking for foreclosure help. It gives the lender the most of what they want, money. Also, it keeps you from having to go through foreclosure.
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Filed under Amount Of Time, Arizona Banks, Economic State, Foreclosure Assistance, Foreclosure Procedure, Foreclosure Relief, House Foreclosure, Legends, Loan Conditions, Loss Mitigation, Lump Sum, One Of The Millions, People, Period Of Time, Real estate, Scottsdale Arizona, Scottsdale Az, Truth Of The Matter, bankruptcy, foreclosure, foreclosure help, foreclosures, money, short sale | No Comments »