Mortgage 411 Center

On March 4, 2009 the complete details of the Homeowner Affordability and Stability Plan will be released. I have previously expressed my opinion on the plan, based on what has already been publicized, particularly objecting to the incentives and rewards included in the program to both banks and homeowners.  Though, this plan is predicted to help between 7 and 9 million homeowners keep their home, through low interest refinances, loan modifications, and even principal reductions, The President stated in his televised speech last week that the program will only be available to help “responsible borrowers”. Though this statement was met with a round of applause  in the audience, it of course leads to the following question: Exactly who are the responsible borrowers?

First some facts:

1) It is estimated that about 93% of Americans are not behind on their mortgages. So this plan is geared toward only 7% of the population.

2) According to the fact sheet: This is a “new program that will provide the opportunity for 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Freddie Mac and Fannie Mae to refinance through the two institutions over time“.

3) There are lenders and companies that are already successful in getting loans modified for homeowners without the intervention of the government and do not leave tax payers responsible with the tab.

My main problem with the plan is that the government should not be involved in the business decisions of banks and lending institutions and that the true responsible homeowners (the 93% who are not behind on their payments) should not be footing the bill.   However, that is only a matter of opinion.  The fact of the matter is that those who may truly need assistance may not be able to get it, and those who did make bad decisions may still be able to get bailed out. 

As stated above the President’s new program is only available to homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae. Now I don’t expect the average homeowner to understand the significance of that statement, and I would guess that our government doesn’t really understand it either. However, the fact that the program is only limited to loans guaranteed by those two institutions means that that there will be no help to borrowers who have non-conforming loans also known as subprime mortgages.  Subprime mortgages were often given to borrowers with credit problems and carried higher interest rates.  While one can make the argument that perhaps these borrowers should not be helped out, one must also note that there are many cases of borrowers who were placed into so-called subprime mortgages when they really could have qualified for a conforming loan.   It has also been stated that the reason it is important to prevent foreclosures, is that even borrowers who are able to pay their mortgage suffer when foreclosures in their neighborhood cause declining home values.   Yet, this program does nothing to offer assistance to borrowers that perhaps have a much greater risk of facing foreclosure, which seems a little contradictory .

Furthermore, I notice that the statement equates Fannie Mae and Freddie Mac loans with responsible borrowers and conforming loans. This is misleading as well. A loan can still be considered “conforming” yet still be a stated income, low down payment or an adjustable rate mortgage. That is, it is entirely possible that a borrower who has a conforming mortgage was not really “responsible” and bought more home than he could afford.

As you can see determing the “responsible borrowers” is not as easy as the governement’s plan makes it out to be. However, even if we are operating on the assumption that only borrowers with conforming loans should be able to take advantage of the program, should all conforming borrowers be classified as responsible? Should a person who lost his job and wants to continue to collect unemployment checks be included as part of the responsible borrowers simply because he as a Fannie Mae loan? Should the Realtor or Mortgage Loan Officer whose income greatly dropped because of the economy yet refused to get a part-time job to make ends meet be helped out as well? What about those who took the path to homeownership even though they had no savings to rely on or emergency funds set aside in case the they lost their jobs or income?

Which leads me to wonder, why the sudden government interest in helping “responsible” people anyway.  Should we now overlook the fact the foreclosure problem in the housing market was caused in part by the government insisting that banks make loans to less than qualified borrowers?  Should we all be picking up the tab for other people bad luck or bad decisions?   One thing is certain, we are probably going to see a lot more of these bumper stickers going around:

Get yours too by clicking here.

Written by Michelle Chamberlain www.mortgage411center.com

Potential borrowers often wonder where they should go when shopping for a mortgage. If they are buying a home should they go with their Realtor’s mortgage person? Should they visit their local bank? Call one of those large national mortgage companies who advertise on TV? What about a mortgage broker? There are a lot of choices out there and consumers are often unsure which road to take.

All of these options can work but they each have their own advantages and disadvantages. Let’s take a look at them more closely:

1) Your Realtor’s mortgage person/company. Some real estate agencies have in-house lenders. Others have relationships with local mortgage people in the area, or your agent may have someone he or she recommends. Some buyers think this is the best choice because their agent can be involved in the transaction and ensure that it gets done. After all the loan officer is not going to want the angry real estate agent knocking on his office door every day demanding to know the status of your loan. This may work if you know your agent well, and trust him or her to make sure you are getting into the best loan for you, and not any program that will qualify you just to get the deal to go to closing so the agent and his mortgage friend can get paid. Also, steer clear of anyone who tells you that you have to use the in-house lender or local mortgage partner. They are clearly only looking out for one person and it’s not you!

2) Your local bank. You may very well get the best deal at the local bank as they sometimes offer some of the lowest rates, that is if you have perfect credit, can document your income and have the necessary money for down payment and closing costs. This is a very small number of borrowers and may not be you. Local banks also have some great programs for first time buyers that you probably can’t get elsewhere. However, don’t think that they will approve you just because you are a long time customer, know all the employees, never bounced a check etc. Unless you meet their strict criteria they probably won’t.

3) National mortgage companies you see on TV. You may think that this is the safest choice. How can you go wrong with a company that has ads running during the Super Bowl, right? Wrong. In the past years these types of companies have proven to be some of the worst choices for potential borrowers, charging high fees and rates, putting people in loans they could not afford and causing people to lose their homes. Many of these companies are now out of business, and some well on their way. Not to mention these companies are huge and get thousands of calls a day, so you can forget personal service and having someone to answer your questions about all the fees and charges that you don’t understand. In fairness, not all national mortgage companies are bad, and there are probably a lot of hard working mortgage professionals employed by these companies who will work to get you the best deal. The problem lies in weeding out the good from the bad.

4) Mortgage Brokers. A mortgage broker does not work for anyone bank or lending institution. A good broker will have access to a variety of different lenders and programs, even those for borrowers with less than perfect credit. You will have more options for financing with a broker than a local bank and most likely even the large mortgage company so there will be no need to shop around. If you do not meet the criteria of one lender, you may certainly be able to qualify for a loan at another.

Also a good broker will be able to offer you personalized service and work to get you the best possible rates for you because unlike the real estate agency’s in-house lender (who is basically handed clients by all the company’s agents) the mortgage broker will actually have to earn your business and work to keep it. There are a few brokers that are dishonest, and care more about their commission than they do their clients. But the majority (and those who wanted to remain in business) are not and know that if they do not find the best loan for the buyer the bank or lender down the street will.

Whoever you choose for your mortgage needs it is most important that you find someone you can TRUST. Don’t be afraid to shop around, and ask questions before applying for the loan. And if you are currently working with someone who is not returning your calls, answering your emails, or helping you understand your options, don’t be afraid to take the exit off of that road and go elsewhere.