New initiatives designed to help mortgagers in need, and stimulate the troubled economy, have been much spoken about lately. Experts tend to find a number of weaknesses in Obama’s Homeowner Affordability and Stability Plan and doubt that these initiatives can really tackle the current crisis. They say it is too expensive, time-consuming, and have limited access due to certain provisions and stipulations.
One of the serious weaknesses of the new initiatives they point out is that only borrowers with loans held by the federally-controlled and subsidized Fannie Mae and Freddie Mac will be eligible to refinance. Borrowers whose loans are held by private investors are denied this right. The housing market at present looks divided to define the government-selected winners and losers areas.
olya Uncategorized, mortgage crisis, Fannie Mae, Freddie Mac, Homeowner Affordability and Stability Plan, housing market, Obama
As we already know, the Obama administration’s mortgage plan encourages lenders to modify the mortgages of homeowners who can’t afford their monthly payments and are at risk of default. Those homeowners, who qualify, would keep their current loans, but the payments would be reduced to 31 percent of before-tax income. The guidelines for the mortgage modification plan make 17 pages and outline, which homeowners are eligible for modifications and how those monthly house payments are reduced to 31 percent of income.
Under this plan, the house payment includes principal, interest, taxes, homeowners insurance, and homeowners association or condo fees, and excludes mortgage insurance premiums. First off, the lender drops the interest rate as low as 2 percent. This stage may be sufficient to bring the payment down to 31 percent of income. If not, then the second step would be extending the term of the loan up to 40 years.
If a 2 percent rate and a 40-year term don’t bring the payment down enough, the third measure is to “forbear principal.” This means that the borrower owes the same amount as before, but pays interest only on part of the mortgage balance.
olya Uncategorized, mortgage forbear principal, foreclosure, mortage balance, mortgage modification, Obama
The Obama’s plan is not a panacea and it would not prevent all foreclosures. There are families, whose debt is so high that even with this modification, there is no way to help them out with this plan. Also, it doesn’t address the problem of borrowers with second mortgages, such as home equity lines of credit. Any modification or refinancing would apply only to the primary mortgage.
The truth is that the number of people who are “underwater” on their mortgages has risen to about 15 million recently, while the president’s initiative aims to help only 7 to 9 million.
olya Uncategorized, mortgage modification plan, Obama, obama's plan, prevent foreclosure, refinancing, second mortgage
People are hesitant about investing in property during the time of current credit crunch. Housebuilders can’t do enough to entice buyers nowadays. Year 2010 is called the approximate time by which the economy will be back on its feet. Until then, residential mortgages suffer this much spoken about foreclosure crisis.
Obama administration announced the methods by which they are planning to solve the current foreclosure crisis. Those methods are associated with massive write-downs of principal balances: a rewrite of the federal bankruptcy code to enable judges to modify residential mortgages and loan modifications. In other words, it is necessary to rework the structure of the current mortgage finance system now, as well as to introduce new housing initiatives. Mortgagors are promised incredibly low mortgage interest rates, 4.5% or lower.
In order to fulfill all the promises made, the government will have to turn into a mortgage bank and attach its guarantee to the securities. There is an opinion that banks may cease to be originators of mortgages. Residential mortgage may become one more item on the federal budget and compete with other important initiatives of the federal government. And what is more, the demand for residential mortgages could exceed its availability at some point. We’ll see if the promises and long-term projections will become a reality.
olya Uncategorized, mortgage credit crunch, foreclosure crisis, loans, mortgage interest rates, Obama, residential mortgage