Obama And Mortgage Relief – Relief for the mortgage and real estate market could be on the way thanks the Obama administration. Most people agree the real estate market is in trouble and looking like it will continue to dip even further. These people feel President Obama should step in and provide some mortgage relief for homeowners struggling with underwater mortgages.
Those into real estate investing are still looking for some assistance as their issues are not being address. It is difficult for many property owners to get an opportunity to refinance their under water mortgages looking for relief. Obama, nor anyone else, has addressed this market, but maybe it is after this potential intervention on the part of the President.
Obama And Mortgage Relief
Obama And Mortgage Relief
Unless you have been under a rock recently, you know Obama will be giving a speech next week about the economy. He will unveil his plan to deal with the issues in the market. He is expected to talk about job creation, but many are anticipating some conversation and relief action for the struggling real estate mortgage market.
Obama and his mortgage relief effort are expected to deal with borrowers that are currently underwater. An underwater mortgage is when the property is worth less than owed on the property. The decline in the housing market has really forced many of these homeowners to be in a tough situation.
Typically, banks will not loan or refinance on a property that isn’t less than a 80% LTV, loan to value, ration. This means if your property is worth $100,000, then the bank will only loan you $80,000.
However, many homeowners in the market today are finding themselves in a situation where their property is worth less than it is worth. For example, the home is worth $80,000, but the mortgage on the property is $100,000. This situation makes it impossible for these individuals to refinance into a better rate and get an opportunity to gain control of their situation.
Sounds like a really bad situation to be in as a homeowners and it is. Can you imagine being in this situation? It has to be very tough and people are looking for Obama to do something, but what could he possibly do.
The solution, or at least bandage, most people are looking for is an underwater refinance option. To provide the mortgage relief these homeowners need, Obama may introduce a refinancing initiative for these borrowers. The loans would be backed by the government entities of Fannie Mae, Freddie Mac, or the Federal Housing Administration, according to various reports.
You may be worried about the government agencies taking on this sort of risk in the market, but they are responsible for most of the mortgages currently anyway. In fact, here is a state I wasn’t aware of. It is said that Fannie Mae, Freddie Mac, and the FHA are responsible for 90% of the current housing market loans. This is significant exposure, so the risk couldn’t get any higher.
Will Obama And Mortgage Relief Plan Work?
No one can say for sure. The market doesn’t seem to be getting any better these days. One thing is for sure. If these underwater mortgage borrowers were allowed to refinance, they would be able to participate in some of the lowest mortgage rates in history.
The current mortgage rates are down to 4.22% for a 30 year, fixed mortgage. Many of these potential borrowers are on rates much higher than the current rate. Even worst, many of these homeowners are on adjustable rate mortgages, which could swing into much higher rates if interest recover and are raised.
Another question about Obama and the mortgage relief plans is what about the credit score? Obviously, if these homeowners have gotten behind in their mortgages or can’t afford it, then their credit scores will be in the toilet as well. Will people be able to refinance their underwater mortgage despite their credit score? Or will there be some sort of system involved that will slide the scale and interest rates?
The bottom line is there are still a lot of questions about the potential Obama and mortgage relief action. I think everyone can agree with this statement. The question is what do you think it would do for the real estate market and homeowners in trouble? - Obama And Mortgage Relief
I think it would be great for homeowners who could pay their mortgage. It will lower their payment and stimulate the economy if they can refinance. It probably wouldn’t help the homeowners who are already in trouble. If they can’t pay the current mortgage, then they probably can’t pay the lower rate either.
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When does the bleeding from the federal government stop? Sure it will help some people but at what cost?
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Heres a except from a recent article in the Las Angeles Times:
Principal Reduction Program and Financial Planners
“The key to solving the underwater mortgage crisis”
There are some proactive ideas floating around in the Financial Sector that show promise in helping to solve the Underwater Mortgage crisis. One idea being implemented by Ocwen Financial Corporation has to do with Mortgage Principal Reduction. Ocwen is one of the largest servicers of distressed home mortgages in the country, began offering more than 3,000 underwater borrowers Mortgage Principal Reduction in a test that began a year ago.
The Principal Reduction test program works like this:
Program restores some equity in the borrowers’ property, which helps motivate them to stay current on their modified loan payments and avoid foreclosure.
Modify underwater borrowers’ loans so that their payments are reduced to a manageable amount and cut their principal debt over time
Make the deal dependent on their scrupulous on-time monthly payments of the new amount plus sharing of a portion of any future profit they make on the house sale.
Reduce loan balance to a level where you will have 5% positive equity in the house. That is, rather than the original amount that has you drowning, (set your debt at 5% below the appraised value of the house.)
Modify the mortgage so monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, the lender will write off the amounts of the original debt balance that we reduced. In exchange, they will expect that homeowners do two things: Stay current on your loan payments, and agree to let lender share 25% of any future gain you make on the house at resale.
Results of this program so far:
The results to date: 79% of the customers offered the program in the test signed up, and the re-default rate has been just 2.6% — far below the 40% to 50% rates within similar time periods seen in some federally sponsored loan modification efforts. Ocwen, which services 460,000 loans and is acquiring a portfolio of 250,000 more next month from Goldman Sachs’ Litton Loan Servicing unit, said the test was so promising that it’s now taking the program national. Ocwen Chief Executive Ron Faris says the key to the program is that the shared appreciation approach allows for a restoration of equity for borrowers, which is “psychologically important” and greatly affects their motivation to keep current on the modified payment terms. It gives them a stake again and gives them some hope.
Financial Planners can enhance the Principal Reduction Program:
I would add the following provisions to the Ocwen Financial program to motivate and entice Lenders to participate.
Any lender that promotes a similar program would assign a Financial Planner that would work with the homeowner and analyze their unique financial situation.
The Financial Planner works for the lender and is paid from a small portion from what the Homeowner saves in their newly reduced mortgage payment.
The Financial Planners function is to come up with a workable financial plan for the homeowner to follow based on their monthly income and expenses and create a blue print for the Homeowner to follow. This means educating and implementing a retirement savings program, rainy day fund, college fund and vacation fund. The financial planner can also suggest investment products offered by the current Lender. This means the Lender recoups’ some of the lost Principal Reduction funds in the form of IRA‘s, 401 K’s., Money Market Accounts and other investments. They then can use these investment premiums to reinvest in their company to increase their profits which in turn will help stabilize the Housing and Financial Markets.
The Financial Planner also makes sure a plan is put into place to pay off credit cards and possibly have their employer the (Lender/bank) consolidate the credit cards and facilitate the means to pay them off
The Financial Planner is also keeping the interest of the Lender in mind, almost guaranteeing that the Homeowner does not default on the mortgage.
The whole point here is the Financial Planner is helping the Homeowner develop a plan to stay on tract, pay their mortgage, pay off credit card bills, save for retirement and free up disposable income. This means the homeowner will now have disposable income to buy goods and services that will stimulate the economy. This means job creation and new home purchases. Part of the new jobs created would be thousands of financial planners hired across the country by the Lenders offering the Principal Reduction program. With 11 million Home Mortgages underwater, that’s a lot of Financial Planners that need to be hired. Think what that would do to the National unemployment statistics. Most importantly, Financial Planners would get millions of back on the road to good ‘responsible’ financial shape. The Homeowner wins, the Lender/Bank wins and the Economy wins.
I like the above program because both the lender and the homeowner work together to solve the Underwater Mortgage Crisis. The Homeowners stays current on their mortgage, follows a financial “blue print” developed by the “Lenders” financial planner. Also, based on financial planner’s recommendations, Homeowner pays off their credit cards, creates an investment portfolio and now has disposable income to spend on goods and services. The lender receives a return on their investment by receiving 25 % of profit from the sale of the home, a revenue return in the form of Homeowner purchasing their investment products and the end to the stampede of Home foreclosures.
Now all we need is an Administration with the courage and vision to implement this program.
Banks maybe unwilling to refinance if you are under water but you have several options such as loan modifications and bankruptcy. Consulting with an Attorney can help you with your options. The problem is good in thought but there are already other options out there for people to keep their homes .