Homeowner Affordability and Stability Plan
http://blogs.wsj.com/washwire/2009/02/18/obamas-plan-aimed-at-helping-troubled-homeowners/
Here is the summary of the plan
OBJECTIVE
- Provide opportunity to home owners who is suffering from high mortgage payment and whose debt is too high to do refinancing.
- By doing this, home owner can reduce mortgage payment as low as 31% of total income (31% or less debt coverage ratio).
- "Rescued loan will be guaranteed by Fannie Mae or Freddie Mac.
INCENTIVE
- For borrowers, if they pay on time, they will receive $1,000 a year for principal reduction for 5 years.
- For lenders, they will receive $1000 fee at the time of refinance and there will be bonus payment if borrowers continues to make payments.
IMPORTANT NOTE
- Targeting borrowers who are NOT behind on payment but who will have hard time making payment in future for rate adjustment or high debt-to-income ratio.
- If borrowers mortgage principal amount is higher than 105% of property value, they are disqualified.
- Conforming Mortgage Only ($417,000 or lower in many area -- up to $625,500 in area like San Francisco).
- Existing mortgage has to be "bought" by Fannie Mae or Freddie Mac.
- First mortgage only (not for second mortgage)
- Lowest mortgage rate available is 3%.
- Fixed up to 5 years.
- Owner-occupants only (not for investment properties)
I was quite surprised with this plan as government target the borrower who is "current" on the mortgage. I guess, since recent "intentional default" and "walking away" is causing such a moral hazard, the government wants to reward those who are making payment on time.
Additionally, it is quite notable that this plan exclude "underwater" home owner whose mortgage exceed 105% of LTV (say owe $105,000 but property value is lower than $100,000). One the the "negative equity" is one of the key reason borrowers walk away from the property. Since 17.6% of home owners have negative equity, I believe more than 10% of home owners have negative equity more than 105% of LTV. This indicate that these home owners with too much negative equity will continuously be the source of foreclosures (= housing will not bottom in near future).
http://www.zillowblog.com/americans-lose-14-trillion-in-home-values-in-q4/2009/02/
I think this plan is good but does not solve core issues and housing bottom is yet to come.
Happy Investing!!!!!
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Here is the summary of the plan
OBJECTIVE
- Provide opportunity to home owners who is suffering from high mortgage payment and whose debt is too high to do refinancing.
- By doing this, home owner can reduce mortgage payment as low as 31% of total income (31% or less debt coverage ratio).
- "Rescued loan will be guaranteed by Fannie Mae or Freddie Mac.
INCENTIVE
- For borrowers, if they pay on time, they will receive $1,000 a year for principal reduction for 5 years.
- For lenders, they will receive $1000 fee at the time of refinance and there will be bonus payment if borrowers continues to make payments.
IMPORTANT NOTE
- Targeting borrowers who are NOT behind on payment but who will have hard time making payment in future for rate adjustment or high debt-to-income ratio.
- If borrowers mortgage principal amount is higher than 105% of property value, they are disqualified.
- Conforming Mortgage Only ($417,000 or lower in many area -- up to $625,500 in area like San Francisco).
- Existing mortgage has to be "bought" by Fannie Mae or Freddie Mac.
- First mortgage only (not for second mortgage)
- Lowest mortgage rate available is 3%.
- Fixed up to 5 years.
- Owner-occupants only (not for investment properties)
I was quite surprised with this plan as government target the borrower who is "current" on the mortgage. I guess, since recent "intentional default" and "walking away" is causing such a moral hazard, the government wants to reward those who are making payment on time.
Additionally, it is quite notable that this plan exclude "underwater" home owner whose mortgage exceed 105% of LTV (say owe $105,000 but property value is lower than $100,000). One the the "negative equity" is one of the key reason borrowers walk away from the property. Since 17.6% of home owners have negative equity, I believe more than 10% of home owners have negative equity more than 105% of LTV. This indicate that these home owners with too much negative equity will continuously be the source of foreclosures (= housing will not bottom in near future).
http://www.zillowblog.com/americans-lose-14-trillion-in-home-values-in-q4/2009/02/
I think this plan is good but does not solve core issues and housing bottom is yet to come.
Happy Investing!!!!!
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