Wednesday, 18 March 2009

Hardest Hit Markets Unlikely to Get Relief From Obama Rescue Plan

Homeowner Affordability and Stability Plan was announced in mid February and starting early March, lenders finally started working with borrowers on the modification applications.

* I got official underwriting guideline --- shoot me email if you are interested.

While I posted details of the guideline previously, key eligibility criteria is 1) borrowers' mortgage must be guaranteed by Fannie Mae / Freddie Mac and 2) underlying mortgage does not exceed 105% of property value.

Here is the issue for homeowners in the hardest hi markets such as Florida, Nevada and California's Central Valley (many of mortgage has 105%+ LTV) and Coastal California and New York City area (many of the mortgage are jumbos)., leading real estate information website, has done analysis on eligibility by MSA for rescue plan. On US average, it looks like 25% of existing mortgages are qualified. In the MSA like Toledo OH, more than 45% mortgage are qualified.

However, in the hardest hit markets, eligible mortgage goes down dramatically. Here are the data from a few harest hit markets:

- In Miami, only 17% of mortgage are eligible for rescue plan. Because of siginificant decline in real estate price, 25% of mortgage have too high negative equity, exceeding 105% LTV. I believe market like Las Vegas/Phoenix fall into this category.

- In San Jose CA, where median real estate price is one of the highest in the US, only 7% of mortgage are eligible for the rescue plan. The issue is that 25% of mortgage are ineligible because of jumbo loan, exceeding limit of conforming mortgage.

- San Diego falls into somewhere between Miami and San Jose.

MSA Eligible Too High LTV Jumbo
Miami-Fort Lauderdale 17% 25% 6%
New York / NJ 16% 3% 9%
Los Angeles 9% 8% 8%
San Diego 12% 13% 17%
San Francisco 8% 7% 21%
San Jose - Santa Clara 7% 3% 25%

* I believe, in market like Austin Tx, where 1) most of existing mortgage are conforming mortgage and 2) real estate price has not declided much, approx. 40% of mortgage are eligible.

This data clearly shows the limit of the rescue plan to hardest hit area. Especially in high priced area, goverment is saying "you stupid Californian/New Yorkers bought **luxury house** with jumbo mortgage --- take care of your own mess".

It is kind of ironic that Californian/New Yorkers are penalized on these issues as Obama administrations were strongly supported by high-income white color workers in these markets. As tax hike on high income family ($250,000+) maybe in effect soon. One thing that is clear is that government always aim for "salaried employees" for tax revenue. For regular people with regular income, to live in the place with low cost of living (like Austin Tx), continue to make more sense........

Happy investing and happy mortgage modifications!!!

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