Details of the Obama mortgage plan - New England Patriots Forums

Real World · 02-19-2009, 10:21 AM

What say you?

*The plan would allow mortgage financing companies Fannie Mae and Freddie Mac, both taken over by the government last year, to refinance mortgages they own or have guaranteed even if more is owed on a home than the home is worth. In the past, borrowers who owed more than 80 percent of a home"s value were unable to refinance under Fannie and Freddie rules. The new guidelines would allow homeowners to refinance into loans of up to 105 percent of a home"s value, providing help for people whose property values have declined in the recession.

*The White House says this could reduce monthly payments for up to 5 million homeowners.

*The plan only applies to people who have a mortgage backed by Fannie or Freddie; many Bay Area homeowners have so-called "nonconforming" loans not backed by Fannie and Freddie that will not qualify for this refinance provision.

*Applies to borrowers current on their payments for loans on primary residences.

*For example: A homeowner has a $420,000 loan on a home now worth $400,000. If the loan could be refinanced from a 6.5 percent rate to a 5.25 percent rate, the payment would drop by about $430 a month.

*If lenders agree to reduce rates or principal balances to levels borrowers can afford, the government will take on part of the loss incurred by lenders. Participating lenders will be required to cut rates or principal enough that the monthly mortgage payment is no more than 31 percent of a borrower"s income.

*The government will also make incentive payments to lenders for modifying mortgages, and offer principal reduction of up to $5,000 to borrowers who keep current on their payments.

*Up to 4 million homeowners could benefit, and the plan is projected to cost $75 billion.

*For example: Homeowners whose mortgage balance is now 120 percent of the value of the home have monthly payments of $2,600, equal to 40 percent of their income of $6,500 a month. The participating mortgage servicer reduces the payments to 31 percent of income, or $2,015 monthly. The government absorbs half the cost of getting the homeowners" payments to 31 percent from 38 percent. The lender absorbs whatever loss it took to get the borrowers to a 38 percent debt-to-income ratio.

*Using money already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to buy Fannie and Freddie mortgage-backed securities to maintain stability and liquidity in the marketplace. The department will provide up to $200 billion in capital.

*The administration will work to change bankruptcy rules so judges can reduce mortgages on primary homes to their fair market value, as long as the borrower sticks to a court-ordered repayment plan.

*As part of the $787 billion stimulus package that President Barack Obama signed into law Tuesday, the administration will award $2 billion in competitive grants to communities experimenting with innovative ways to prevent foreclosures.

***BelichickFan*** · 02-19-2009, 11:05 AM

No thanks. I'd prefer my house and stocks value go to zero. I didn't understand the slippery slope of handouts when I, reluctantly, supported TARP. I have now learned that the end of the world warnings were just silly as we continue to hear them now and that once the government starts bailouts, everyone just waits around to "get theirs". I was wrong then and this is wrong now.

If you lost your job and can't get another then I feel bad for you but you adjust your lifestyle. If you got a loan you couldn't afford then you adjust your liefstyle. Those that need to walk away can do so, but no more bailouts or government help.

Mean while the stock market laughs at Obama and keeps going down - down 25% or so since the election. Which would be fine with me if it were due to the free market. However it's not fine for us to keep pounding on the debt and have the stock market keep going down because of it.

STFarmy · 02-19-2009, 11:07 AM

It's not as bad as I originally thought it would be, but I'm still absorbing it.

PR might have some better idea about the financial implications of it.

But if I don't have a Fannie/Freddie loan, could I refinance it under this plan? I've made all my payments and been responsible, but I wouldn't mind getting a lower rate. I know I can do that anyway though, so I'm not sure how this really affects me.

PatriotsReign · 02-19-2009, 11:30 AM

Quote:

Originally Posted by STFarmy

It's not as bad as I originally thought it would be, but I'm still absorbing it.

PR might have some better idea about the financial implications of it.

But if I don't have a Fannie/Freddie loan, could I refinance it under this plan? I've made all my payments and been responsible, but I wouldn't mind getting a lower rate. I know I can do that anyway though, so I'm not sure how this really affects me.

Who knows what the total financial implications upon the banking system and the total economy will be...I don't know.

But I do know that it's not right if people get their principle reduced. What about those who can still afford to pay for their homes? They won't get their principle reduced...so once again, those that screwed up will be rewarded!

This won't have an impact upon falling home prices because it won't change the number of people who will qualify to buy a home. If we don't have more home buyers, then homes still won't sell and the prices will continue to decline.

I think they'd be better off NOT reducing anyone's principle and let the foreclosures happen. The quicker home values find their bottom, the quicker they'll start to sell again.

Everything the gov't is doing will slow our economic decline, but it won't turn it around. The slower the decline, the longer we'll have to wait for recovery. I understand that the gov't is trying to prevent massive suffering, but we're just going to suffer less, but longer.

STFarmy · 02-19-2009, 11:41 AM

Quote:

Originally Posted by PatriotsReign

But I do know that it's not right if people get their principle reduced. What about those who can still afford to pay for their homes? They won't get their principle reduced...so once again, those that screwed up will be rewarded!

That's my main issue. I was responsible, bought in my price range, got a fixed rate not a stupid ARM, work hard and will work more if I ever get in a bad situation and need to get my mortgage payment out. So how does this bill affect me? I guess it doesn't. Maybe it might get me some kind of credit or discount to refinance to a lower rate. Because mine's 6% now, and I think I can do better.

ljuneau · 02-19-2009, 11:45 AM

A question I have regarding:

Quote:

*Applies to borrowers current on their payments for loans on primary residences.

*The administration will work to change bankruptcy rules so judges can reduce mortgages on primary homes to their fair market value, as long as the borrower sticks to a court-ordered repayment plan.

If someone is going into bankruptcy, what is the chance they are current on their payments?

Maybe I'm reading the rules incorrectly. If anyone can provide more info, I would appreciate it.

Wouldn't this just encourage more people to file for bankruptcy too?

Real World · 02-19-2009, 11:55 AM

Quote:

Originally Posted by Real World

What say you?

*For example: A homeowner has a $420,000 loan on a home now worth $400,000. If the loan could be refinanced from a 6.5 percent rate to a 5.25 percent rate, the payment would drop by about $430 a month.

*If lenders agree to reduce rates or principal balances to levels borrowers can afford, the government will take on part of the loss incurred by lenders. Participating lenders will be required to cut rates or principal enough that the monthly mortgage payment is no more than 31 percent of a borrower"s income.

*The government will also make incentive payments to lenders for modifying mortgages, and offer principal reduction of up to $5,000 to borrowers who keep current on their payments.

*For example: Homeowners whose mortgage balance is now 120 percent of the value of the home have monthly payments of $2,600, equal to 40 percent of their income of $6,500 a month. The participating mortgage servicer reduces the payments to 31 percent of income, or $2,015 monthly. The government absorbs half the cost of getting the homeowners" payments to 31 percent from 38 percent. The lender absorbs whatever loss it took to get the borrowers to a 38 percent debt-to-income ratio.

*Using money already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to buy Fannie and Freddie mortgage-backed securities to maintain stability and liquidity in the marketplace. The department will provide up to $200 billion in capital.

The "details are a little vague, so without seeing the fine print, I'll opine while assuming, so take this for what it's worth.

I ran the numbers myself in a loan amortization software I have, and they're close to the above. At 6.30%, $420k = $2,599.69. At 6.5% that $420k is $2,654.69. Peanuts some might think, but a total of $20,000 over the life of a 30 year mortgage. Never the less, the figures are doable, so lets analyze.

$6,500 monthly income = $78,000 annual
$2,600 monthly payment = $31,200 annual
31% of annual income = $24,180 annual / $2,015 monthly
9% difference = $7,020 annual / $585 monthly
Half/50% Debt-to-income of 31% = $3,510 annual

This is where it's unclear. So the gubmit is going to split the cost of getting Owner X to 31% D-to-I ratio. One would have to therefore assume that reaching the 31% would be over the life of the mortgage, and not just for one year. So we'd therefore have to assume that it would be $3,510 annually, paid by the gubmit, over the 30 year life of said mortgage. Is this accurate?

30 years @ $3,510 = $105,300

I'm at work and rushing through this, so bear with me if I'm way off with my assumptions here.

Quote:

*The administration will work to change bankruptcy rules so judges can reduce mortgages on primary homes to their fair market value, as long as the borrower sticks to a court-ordered repayment plan.

Say what? Judges are going to their "fair market value"? That's insane! So some dude who paid $500k for a home that is realistically worth $300k tops, gets to keep his house, and wipe away $200k off the top, cuz a judge says so? The details are vague, so I want to stress that I am assuming much here.

Real World · 02-19-2009, 12:02 PM

Quote:

Originally Posted by PatriotsReign

Who knows what the total financial implications upon the banking system and the total economy will be...I don't know.

But I do know that it's not right if people get their principle reduced. What about those who can still afford to pay for their homes? They won't get their principle reduced...so once again, those that screwed up will be rewarded!

This won't have an impact upon falling home prices because it won't change the number of people who will qualify to buy a home. If we don't have more home buyers, then homes still won't sell and the prices will continue to decline.

I think they'd be better off NOT reducing anyone's principle and let the foreclosures happen. The quicker home values find their bottom, the quicker they'll start to sell again.

Everything the gov't is doing will slow our economic decline, but it won't turn it around. The slower the decline, the longer we'll have to wait for recovery. I understand that the gov't is trying to prevent massive suffering, but we're just going to suffer less, but longer.

I've got a friend who keeps sending my listings of homes person X is interested in. Mind you this person is currently underwater in his current home. I keep telling said person to wait cuz the market hasn't corrected itself yet. A couple of aquantances who are in RE, comment about how good a price is, when it's in the $300's, where which I disagree. In trying to explain it to them, I came across this graph, and thought of you.

***BelichickFan*** · 02-19-2009, 12:03 PM

Quote:

Originally Posted by STFarmy

That's my main issue. I was responsible, bought in my price range, got a fixed rate not a stupid ARM, work hard and will work more if I ever get in a bad situation and need to get my mortgage payment out. So how does this bill affect me? I guess it doesn't. Maybe it might get me some kind of credit or discount to refinance to a lower rate. Because mine's 6% now, and I think I can do better.

If you want to refinance to a current market rate, great. But for judges to be able to just lower the rate to a lower rate than what the bank probably borrowed it at initially doesn't work without taxpayer assistance. In theory it would seem OK to encourage banks to re-finance with new loans but ease the borrowing standards to account for lower home values (assume pseudo equity) but then we still end up back where we started with banks not wanting to lend money if they don't think they have a good borrower.

It would be best to let the market forces settle it out.

***BelichickFan*** · 02-19-2009, 12:04 PM

Quote:

Originally Posted by Real World

Say what? Judges are going to their "fair market value"? That's insane! So some dude who paid $500k for a home that is realistically worth $300k tops, gets to keep his house, and wipe away $200k off the top, cuz a judge says so? The details are vague, so I want to stress that I am assuming much here.

That kind of thing will bring lending to a screeching halt. Would you lend me $100 if a judge could say "BelichickFan, you only owe $60 now as long as you pay back $3 a month for 20 months" ?