With a weakening housing market and impending expiration of the home buyer credit, the Obama administration and Treasury have stepped up efforts to help struggling home owners facing foreclosure, including subsidies for the unemployed and borrowers who owe more than their home is worth.
The revised plan and new programs will get additional funding from the $700 billion Troubled Asset Relief Program and money from $50 billion already set aside for housing programs. $14 billion will be allocated to the FHA guarantee programs.
I will provide more qualification details of this program as the FHA and Treasury release updated information, and encourage you to subscribe via RSS or Email to get the latest new directly to your reader or in box.
[Updated March 4 2009] This was a question I received based on an earlier article looking at the refinancing under current market conditions. With interest rates at historic lows, refinancing has become a very attractive option for many home owners who could save thousands of dollars on their mortgage interest repayments. For example, by refinancing from a 6.75% rate to 5% rate on a $200,000 mortgage, could reduce monthly repayments by up to 17%!
However Obama’s new $75 billion “Homeowner Affordability and Stability Plan” (housing) plan may provide the refinancing relief many responsible home owners were looking for. Here are the main provisions for refinancing under the plan:
2. Your Loan to Value ratio can now be as high as 105%. Under current conditions you cannot refinance mortgages where the loan-to-value (LTV) ratio exceeds 80 percent without some form of credit insurance. That insurance can be difficult or impossible to obtain in parts of the country that insurers have labeled declining markets, with high risks of further deterioration in values. Under the Obama housing plan, the LTV has been raised to 105%, which means you qualify even if you owe between 80-105% of your mortgage. However it you are severely “underwater” and owe more than 105% of their home’s value you will not qualify and may have to wait for mortgage relief via other lender driven provisions in the housing plan.
3. Allows borrowers with less than 20% equity in their homes to refinance to the current prevailing rate. However they must meet the above LTV criteria.
More than 25% of home owners will qualify under the new refinancing criteria, but there are some restrictions to prevent abuse of these new provisions.
- The cutoff date for the program is June 10, 2010. Each servicer will provide details on the terms and costs associated with refinancing. This should provide transparency and information on the effectiveness of the program.
- No “cash outs” will be permitted. This means the new loan balance can total only the previous balance, plus settlement costs, insurance, property taxes and association fees.
- Loans that had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie’s exposure to loss. But loans where borrowers originally made down payments of 20 percent or more will not require new insurance for the refinance, despite current LTVs over the 80 percent limit.
- Loans balances will not reduce. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.- Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.
If you think you will qualify you should start getting ready to start the refinancing process as soon as possible because there will be a huge rush of applicants. Borrowers can now contact their loan servicers to see whether they are eligible for assistance. Federal officials have posted additional information for borrowers to determine their eligibility at hud.gov. To prepare, start gathering the information that you will need to provide to your lender which includes:
> Documentation for income sources (monthly and one-off), including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
> Information about any second mortgage on the house
> Payments on each of your credit cards if you are carrying balances from month to month, and
> Payments on other loans such as student loans and car loans.