HOW THE FEDERAL BAILOUT AFFECTS YOU
Updated March 6 2009 The new government Plans
Plan A- Making Home Affordable
- For homeowners whose property has not dropped more than 5% in value.
- Average drop in value in Las Vegas has been 40-60%.
- No provision for borrowers who have high risk loans defined as Jumbos, Pay-option-arms, single adjustment arms like 3-1,5-1 or 7-1 arms, high rate arms.
- In essence every loan granted in Vegas over the past 5 years are not eligible for assistance.
- Investors or 2nd homes are not eligible.
- The value has to be within Fannie Mae guidelines new price below $417,000
- And your new adjusted payment cannot exceed 31% of your income.
- Must qualify under FHA guidelines
- Job
- Credit
As wages continue to drop in Vegas, this will give more and more lenders an out to not modify mortgages.
Plan B- Homeowner Affordability and Stability Plan
- Seek payment relief through Bankruptcy.
Judges were to be allowed to cram down principal balances. Passed house stalled in Senate. Will most likely not pass. Many lenders think it has passed and therefore will not modify principal loan amounts.
This was written in October 2007- have left it for historical prospective. RB
** If you have a pay option arm from Countrywide, you will be contacted Dec 1 with a modification program. Be careful before you accept it as most likely it will not modify principal loan amount.**
By now you have heard about the 700 million dollar Federal Bail out. The biggest question is what are they bailing out and how does it affect you?
Honestly no one knows what was bailed out. In reality the Bail Out monies currently spent probably bailed out Wall Street brokerages and a few mortgage companies of outstanding bad debt. But in actual fact very little if any of the money went to actual borrower mortgages. That will come later.
Prior to the $700 billion bail out there was an original bail out of Fannie Mae and Freddie Mac that included wordage that lenders could modify a borrower's mortgage at the lenders discretion.
As anyone in the real estate business and now most consumers know mortgage companies do not want to modify the mortgages. Of course they don't want them back and more and more they don't want to foreclose either. Basically they are stuck. They can't go forward and they won't go back so nothing happens.
We have broken down the process into two parts. New Loans (Plan A) & Loan Modification (Plan B)
Plan A is a FHA Loan Modification or New Loan. This program is for borrowers whose home values have declined significantly, have an adjustable rate, pay option arm, heloc and are uncomfortable with the up coming adjustment and payment. You do not have to be in HARDSHIP mode to qualify for this loan. This is about not paying for lost equity due to declining value or crazy payments based on what was normal the last two years. You simply need to meet the following criteria.
The home is the primary residence.
Credit score above 580.--If your credit score was 800 and you have missed a payment you may still be above 580 and qualify.
Debt to income is below 38%
Plan B is for everyone else.
Loan modifications began with borrowers challenging lenders to modify loans often times with the assistance of attorneys. Unfortunately the threat of a lawsuit always gets everyone's attention and mortgage holders under pressure began to modify loans. So far we have had good results in modifying many loans but generally getting a new loan is often times easier and quicker and less painful for all involved.
In situations where loan modification was not warranted we placed new loans over the old ones taking away the old loan and bad debt giving the borrower a new loan. All new loans are with a new FHA fixed rate that is fully amortized at the NEW APPRAISED VALUE IN LINE WITH WHAT THE VALUE OF THE BORROWERS PROPERTY CURRENTLY IS. This is similar to the HOPE PROGRAM as introduced by FHA. The HOPE program actually adds the lost value on to the end of the loan or when the home is sold it is recoverd. Although there are alternatives and I dont think you should pay for lost equity. That is the point of loan modifying.
The hardest part for everyone to imagine is what happens to the excess debt that is relieved from the previous loan. It magically disappears and does not follow or attach to anything. Under the federal bail out program MODIFYING OR GETTING A NEW LOAN HAS NO NEGATIVE IMPACT ON YOUR CREIDT RATING. In actual fact it should help most borrowers as there is a much greater likelihood that they will be current on their payments. The debt that is lost is either pooled by the current lender or written off or in many cases to come in the future, the lender may be sold to another financial institution or go bankrupt and the dept is lost via that vehicle. The good news it is that current borrowers are no longer responsible.
Modifying loans that have a second loan, equity line of credit or HELOC's vary depending on if the payments of the first, second, equity line or other loan is serviced by one lender. This usually requires a little more investigation on an individual loan basis.
To begin the loan modification process an audit of the current mortgages must be done. This will determine if a loan modification is to be done or a new FHA loan will replace the old loan.
Loan modification does just that. Modifies the loan, from rate, to value to term to pay off. It may be the same old loan but every term and condition is different.
The cost of loan modifications depend on the amount of the modification that needs to be done. The more work required the greater the cost, but before you sign any papers we will complete an audit and give you an exact cost. In actual fact it will cost you nothing as the fees associated will be no greater than the cost of your old mortgage that you will not have to pay during the loan modification process. So far the process has been 100% successful and we will give you a written guarnatee if we are unable to modify your loan you will receive a 100% refund of your monies.
Currently all the new loans are FHA. Under this program they appraise your property and then will lend 96.5% of that amount. There is no down payment so don't worry about where the 3.5% comes from. Remember the government is trying to alleviate your pain not add to it. There is a new MIP policy added and closing costs are added into the loan amount but the costs are limited, and will not come out of your pocket at closing.
The only up front costs that you will incur will be a $375 application fee and credit verification. All of this is credited back at closing.
An appraisal is required but we have appraisers that are discounting the fee to $250 and to help with the pain will accept most major credit cards.
If you are one of the lucky ones and not affected by this Mortgage crisis, pass this along to friends and clients, until we solve this crisis no one is safe. We have to stop the decline in housing values to make the housing market move forward.
Like everything there are certain rules, restrictions and limitations but we have to try and do something.
By not doing anything the only thing you have to lose is your home.
For more information about loan modification or establishing a new loan contact me at rick@rbrealty.info
