The “fix” is in.
Today the details of the Obama Loan Modification and refinance plan were released. You can get full details at www.financialstability.gov. There will be the full details of the plan. We have broken down the big issues here. If you have any questions, let us know.
First on refinancing. There is good news for the homeowner who is upside down is unable to refinance due to a negative change in property value. If your loan is owned by Fannie Mae or Freddie Mac, you are now eligible to refinance. In fact, if a lender has already turned you down for a refinance here, directly from the website here is the way to figure if this refinancing option is open to you:
Do I qualify for a Making Home Affordable refinance? Answer these questions:
- Is your home your primary residence?
- Do you have a Fannie Mae or Freddie Mac loan? If you don’t know contact:
- Fannie Mae, 1-800-7FANNIE (8am to 8pm EST).
- www.fanniemae.com/homeaffordable
- Freddie Mac, 1-800-FREDDIE (8am to 8pm EST)
- www.freddiemac.com/avoidforeclosure/
- Are you current on your mortgage payments?
- “Current” means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months.
- Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?
This program will help a portion of the market that is unable to get help today.
Second is Loan Modifications. The news is not as good here. In a nutshell if you are behind, your loan is a Fannie Mae or Freddie Mac loan and you can prove your income, you can get your loan modified within the following parameters.
- Fixed Rate loan no higher than the going rates for a 30 year fixed (about 5.5% as of today)
- Interest Rate Floor. Lenders will not be required to lower your interest rate below 2.0%
- The option (which all lenders will take) to capitalize (fancy word for add) any back payments, taxes etc. to the balance of the modified loan. (This will make borrowers more upside down than before)
- Payments will be moved to 31% of your documentable income for PITIA (principal, interest, taxes, insurance and association fees)
The challenges here are many but essentially, the lender can put off a loss by capitalizing the arrears making borrowers further indebted.
Anyone who “fudged” or got a stated income loan will have a tough time qualifying even at 2.0%.
Lenders will be swamped, so good luck trying to get through the process.
This program may help a small portion of the borrowing public. The bottom line though is we are sure that not enough homeowners will be eligible and that the rules are not tight enough for us. Combine that with the threat of the bankruptcy cramdown which will drive rates higher very soon and we have a recipe for more problems, not solutions.
