Posted on May 13th, 2013
Since the beginning of the mortgage meltdown millions of homeowners have defaulted on their loans and millions more remain underwater, owing more on their mortgages than their homes are worth. Government programs have encouraged lenders to modify home loans for struggling homeowners, yet only a small percentage have taken advantage of these programs.
Many lawmakers have been clamoring for a new tactic to be used by government-controlled mortgage financiers Fannie Mae and Freddie Mac, which guarantee about 90 percent of all new loans today. The Obama Administration as well as dozens of congressmen have asked Fannie and Freddie to grant principal forgiveness modifications, where a portion of the loan balance is written off, elimlinating borrowers’ negative equity and reducing their likelihood of defaulting. To date, the regulator of Fannie and Freddie has vetoed that option, worrying that it would cost the government too much money and would actually encourage homeowners to default in order to take advantage of the program.
A new study from the Congressional Budget Office (CBO) found that while principal reduction could help save some borrowers from foreclosure, the overall impact on the housing market would be minimal. Of the 10 million homeowners currently underwater on their loans, the CBO estimated that only 200,000 would be eligible for principal write-downs under the government’s Home Affordable Modification Program (HAMP.) The report found that fewer than 60,000 new modifications would in initiated and fewer than 100,000 defaults would be prevented. “The estimated aggregate financial benefit to households would be small,” the CBO wrote. “…[The] expected positive effects on the housing market nationally and on the economy as a whole would be small.”
This report, may make things complicated for North Carolina Representative Mel Watt, who was recently nominated by President Obama to be the next director of the Federal Housing Finance Agency, which oversees Fannie and Freddie. Watt was one of 44 House Democrats who commissioned the CBO study last fall, hoping it would prove the necessity of principal reductions.
Posted on May 10th, 2013
Since the financial crisis hit in September 2008, there have been roughly 4.2 million completed foreclosures across the U.S. through February 2013, according to housing data company CoreLogic. That means there are an awful lot of former homeowners out there hoping to buy a home again someday. And the good news for those folks is that mortgage lenders are perfectly willing to lend to borrowers after a foreclosure – as long as they wait long enough, that is.
“The biggest hurdles for borrowers in qualifying for a mortgage after a foreclosure are the credit score and the waiting period,” says Darice Vieira, loan officer with Commerce Mortgage in Visalia, Calif. “Provided the rest of their credit profile is good, it is not much different than an ordinary candidate applying for a mortgage loan.”
So while it’s no fun to be patient, the waiting period goes hand-in-hand with credit repair. After such a major financial trauma like foreclosure, lenders require borrowers to wait between three and seven years to reestablish their credit and prove they can responsibly take on debt again.
Potential buyers with foreclosures in their past will need to wait between four and seven years in order to obtain a conventional mortgage backed by Fannie Mae. Those who can prove they had extenuating circumstances like divorce, job loss or severe injury or illness could get a new mortgage in as little as three years. Borrowers can apply in three years for an FHA loan if they can put a minimum of 3.5 percent down. And after a short sale, borrowers generally have to wait at least two years before their next mortgage.
It is possible to get a mortgage sooner through lenders who do not sell to Fannie Mae but it will be pricey – much higher interest rates and larger down payment requirements.
The best thing for potential homeowners to do during this waiting period is to improve their credit. Making all payments on time and keeping balances low on credit cards will help to repair their FICO scores and prepare them for their next home purchase.