There has been much talk about the provisions of President Obama's Mortgage Relief Plan that is due to take effect March 4th. Because the bill is being enacted in a very expedited manner, many of the details are still unfolding. However, some of the details are beginning to come out. Given the fact that ShortRefiServices is involved with loan modifications, we are very interested in what is transpiring with the Relief Plan. Here are some of the things we think we know (I say that somewhat facetiously, since the plan seems to be still "in process"). I'll start with the good news:
Homebuyer Credit: If you are a first time homebuyer (generally this means not having owned a home in the last 3 years), you are eligible for an $8,000 tax credit (not deduction) if you buy a home. Under the last mortgage relief bill under the previous legislation regarding the tax credit, the tax credit wasn't really a tax credit: it was an interest free loan. I'll vent when I say it's pretty sad when our "leaders" lie to us about the provisions like they did before. The new tax credit is really a tax credit - they are not kidding this time!
Bankruptcy: This does not appear to be part of the provisions that are coming out March 4th, but it appears imminent. Under pending legislation, it appears that bankruptcy courts will be able to impose new mortgage payments for the borrowers, and the lenders will be required to accept these terms from the court. The legislation is not final yet, but it appears that there will be some provisions for this under certain guidelines. You can bet that lenders will fight to overturn or water this down.
Refinance: The government will now allow a borrower to refinance an existing, owner-occupied, FNMA or FHLMC loan when guidelines may not allow for it currently at current market rates. The guidelines are pretty narrow. First of all, the guidelines only allow for FNMA or FHLMC loans. Most of the loans that are problematic are not FNMA or FHLMC: they are owned by private investors. Worse than the aforementioned, the borrower will not get the refinance if the loan to value is more than 105% of the current market value. The 105% includes the cost of obtaining the refinance. For those of you in California, Nevada, Florida, New York, and other areas, you just got precluded from relief under this provision. Don't forget to thank your politicians for this at the next election!
Modifications: This is still a little murky, but here is what we know so far. Under the Homeowner Stability Initiative, borrowers may be able to obtain modification from their lender/servicer if they are still living in the home (no investor or rental properties). The lenders will be able to lower the rate and/or the principal balance, so that the borrowers monthly housing obligation will be no more than 38% of their gross monthly income. Furthermore, the government will step in to subsidize the payment to lower it to 31% of the gross monthly obligation for 5 years. The cost of this scenario has to be less expensive than the cost of a foreclosure (probably not much of a stretch on that one). The rate the borrower can obtain can be no lower than 2% (this may necessitate a large principal write down for some lenders when the home is extremely "under water".
These are the highlights that we have been able to determine so far. Although I am somebody who works in the modification industry (I'm sure I'm perceived as biased), I think the plan is extremely flawed. The politicians appear to still be "fiddling" while "homes burn". FNMA or FHLMC are not the target for relief, but, since the government in effect owns them, they are the easiest to attack. In effect, the politicians are saying: "look we are dealing with the problem".
The problem is much greater than FNMA and FHLMC. Many of the problem loans are in very expensive areas like California and New York. For the most part, the government has done nothing to help solve the problems here since FNMA or FHLMC loans were not the loans used to buy homes in the "high cost areas". Furthermore, in many of those areas, 105% LTV's are not even close. Sub-prime and "Alt A" loans are not really addressed, since the government doesn't own these loans. The problem still lies with the aforementioned types of loans, and the government isn't (and probably can't unless through bankruptcy - it could get real ugly) able to adress these loans.
While I know many are hoping for relief from the Mortgage Relief Plan, I don't think the government truly addressed the problem: they just continued to "shuffle the chairs while the boat sinks".
