Mortgage 411 Center

I often get questions from readers and clients about the President’s new mortgage plan and how they can qualify.   Although I have read and have written about the plan and I can answer any specific questions to aid homeowners in reducing their mortgage payments,  I also refer people to the source of information ,www.FinancialStability.gov.  This site went live on March 4, 2009 and I didn’t say anything then  but since its inception there has been and STILL is a message which states “This site is coming soon”.   

Come on now , isn’t anyone in the White House doing their job?  Or is the treasury department, who is having a hard time filling other positions, in need of a webmaster as well?  Isn’t there an intern or someone to check things like this?   I’m wondering if we should trust that the rest of the information is accurate when there is one glaringly obvious mistake right there on the front page?

Now really, can we be expected to  take the government’s initiative to help homeowners avoid foreclosure  seriously when the website looks like it was created by somebody’s little brother?

It’s official:  effective April 1, 2009 the maximum loan to value ratio (LTV) on all cash-out refinances to be insured by FHA may not exceed 85% of the home’s value.  Currently the maximum LTV is 95%.  What does this mean in plain English?  Quite simply if you are a homeowner who does not have a lot of equity in your home and you also do not have cash to pay other debts in order to qualify for the mortgage AND you would like to refinance to take advantage of the lower interest rates , you are running out of options.

Why is this important?

• In today’s declining real estate market there are many people who either bought while prices were high, put little or no money down, or both and currently do not have a lot of equity in their homes.  Changing the loan to value ratio from 95% to 85% is going to severely limit the number of people who are able to refinance.  To put it in terms of numbers, say you own a home worth $220,000.  Currently you would be able to refinance as long as the new loan amount doesn’t exceed $209,000 ,  under the new rules that changes  to $187,000.  Even if the value of your home has not declined, if you bought it with only a 5% downpayment you would not be able to refinance with an FHA cash-out loan since you would not meet the new LTV requirements.

• Cash-out does not necessarily mean that the borrower is getting a check  (cash) at closing.  It simply means that more than the balance of the mortgage and closing costs are included in the new loan amount.  While you may not think that you need to or may not want to do a cash-out refinance, you may have to do a cash-out refinance if you have other liens against the property which need to be paid or you have other outstanding loans, credit card bills etc which will need to be paid in order to qualify for the loan.

• FHA loans have less strict credit standards than conventional loans, and the terms are generally more favorable.  This new rule is going to hurt those who probably could use the help the most.

Please note, you may have also heard about the President’s new mortgage plan that will allow homeowners to refinance up to 105% of the value of your home.   This may be an option for homeowners with little to no equity BUT this option does not allow for cash-out at all no matter what the loan-to-value.   What I am seeing is that many people who are unable to afford their mortgage payment also have other debts that they have incurred which is making it difficult for them to qualify for a new loan.  Since this program prohibits cash-outs which could otherwise be used to pay down the debts, the pool of borrowers who can qualify for this program is limited.

Bottom line.  If you are thinking about refinancing to lower your mortgage payment and have been putting it off and know that you do not have perfect credit, 20% equity in your home, or have other outstanding bills that need to be paid you better act now!

If you are in the market to buy your first home you may be able to take advantage of a new federal tax credit for first time homebuyers.  Here are some facts about the tax credit:

• The tax credit is for first-time home buyers only, a first-time buyer is defined as someone who has not owned a home in the past three years .
• The tax credit does not have to be repaid. This is a change from last year’s tax credit which was basically an interest-free loan, repaid over 15 years.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.   So someone purchasing a $60,000 home would only receive a $6,000 credit, while someone purchasing a $300,000 home would only receive the $8,000 maximum.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with modified adjusted gross incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.  Those with incomes over that amount may still qualify for a partial tax credit.

As you can see this is a great incentive for those who are considering purchasing a home this year, but are unsure if now is the right time to take the path to homeownership.  For more reasons why 2009 may be a great time to buy,  please read:

Why 2009 is the Time to Buy

Why 2009 is the Time to Buy - Part 2

Remember, before you even begin to look at houses you should contact a mortgage professional to get pre-approved for a loan,  so that you will be sure you qualify and so you will know exactly how much home you can afford. 

Please contact us with any questions or to get started today.

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