The press is buzzing about the Obama Administration’s new foreclosure prevention plan. So what’s it all about?
Restructuring: part one of the plan makes available $75 billion of U.S. Treasury funds to restructure the loans of homeowners who are behind, or likely to fall behind, on their mortgage payments. The intent is for lenders to lower the borrower’s monthly payment to 31% of the borrower’s monthly gross income. This does not imply a principal reduction, but could include a reduction in interest rate.
This plan does not apply to investors, or those of us with jumbo mortgages, and the Treasury will not subsidize any mortgage adjustments that require an interest rate below 2% to get to the aforementioned 31% threshold.
Refinancing: the second part of the plan helps homeowners refinance into cheaper loans even if the homeowner is “upside down” on his mortgage. Fannie Mae and Freddie Mac, the quasi-government housing agencies, will refinance up to 105% of the value of the homes already held or guaranteed by Fannie and Freddie.
Recapitalizing: part three adds $200B to the money allocated to Fannie and Freddie in order to keep all this going.
So there you have it: the three-part plan from our national government. Now, of course, the Federal Reserve Bank is working through its monetary policy to backstop and stimulate with trillions; the Congress has also just approved a stimulus/bailout/spending plan for another trillion, so bucks are being borrowed and spent in order to soften the already hard landing we have been feeling in the real estate market.
Conclusion: does any of this directly or indirectly affect you? The answer is maybe directly, and probably indirectly. Neighborhoods with low turnover since 2005 have been less affected by foreclosures and short payoffs, as compared with other neighborhoods where turnover was high near the top of the market. If you and your neighbors have been in your homes for many years, that’s probably a good thing for all!
Some of us may be able to take advantage of the new bailout plan, which is supposed to be available beginning March 4th, when additional details are also supposed to be available. If you are interested in finding out how this all applies to your home mortgage – give us a call at (949) 240-5892, or drop us an email.
