New mortgage plan earns some new fans
But is anybody else tired of wimpy mortgage modifications and this endless national soap opera?
This post comes from Marilyn Lewis of MSN Money.
Anybody besides me sick to death of mortgage modification plans, programs, problems, hopes, dreams, failures?
I guess we’ll have to just suck it up and stay tuned because this big soap opera appears to have legs. The latest installment -- let’s call it the modified modification plan -- might have a chance at some modest success.
What’s wrong with the first one?
My big complaint about the Home Affordable Mortgage Program is that it was -- unapologetically -- all about helping banks and investors holding the loans. Homeowners seemed an afterthought.
Although people stuck with mortgages worth more than their homes are the most likely to default, the government minced around, unwilling -- until now -- to ask the mortgage industry to let go some of its stake in these homes.
So, inevitably, a year after the Obama program launched (and after years of the Bush administration ignoring the problem entirely), homeowners still are foundering.
Why? Mostly, people who needed help couldn’t qualify. The Obama plan was all about rescuing people with ruinous subprime loans and putting them into manageable mortgages with reasonable payments. After all, subprime loans, originally, were what the mortgage crisis was about.
But by the time the government finally got a program going, the crisis had moved on. Today, huge numbers of folks in default have no job. Refinancing their mortgage when they simply can’t make any payment -- reasonable or otherwise -- does them no good.
Also, the enticements the government dangled before lenders and investors didn’t interest them enough to offer borrowers substantial modifications. The result:
- The original plan: snatch 3 million to 4 million homes from the jaws of the foreclosure monster by 2012.
- The reality: about 200,000 homes rescued in the last 12 months.
And … don’t look now but another 8 million to 13 million foreclosures are expected to take place over the next five years, reports MarketWatch.
Change you can believe in?
The new program has been tweaked enough that it may actually deliver some help where it’s needed.
This won’t happen fast, though. Parts will launch quickly but the entire thing won’t be operational until fall. The highlights:
- If you’re unemployed: You can negotiate three to six months of drastically reduced payments -- no more than 31% of your monthly income. You must live in the home, have a mortgage less than $729,750, prove you’re on unemployment, and meet other requirements, outlined here, by The New York Times. Once you find work your payments increase.
- If you’re “underwater”: You could get a modification if your home value is at least 15% less than your first mortgage. The company that services your mortgage (sends bills and accepts your payments) must consider reducing your loan principal, but lenders aren’t required to cut the principal.
- If you’re current on your mortgage: You could refinance into an FHA (Federal Housing Administration) mortgage that would reduce some of your principal balance.
- If you have a second mortgage: If you qualify for refinancing into an FHA mortgage, you might be able to get the principal of your second mortgage cut, even if your first mortgage already was modified.
- Borrowers living in the mortgaged homes qualify; landlords and investors don’t.
See this government Web page and the five links immediately below for details.
What are the odds now?
Opinions vary on how well it will work. Take your pick:
- “The odds are long, and many struggling borrowers won't qualify,” predicts The Associated Press. Chris Mayer, a real estate professor at New York's Columbia Business School, tells the AP: “I don't think they're ever going to reach 3 to 4 million homeowners. … These plans always turn out to be harder than we think.”
- More like 1 million to 1.5 million will actually benefit, Mark Zandi, chief economist at Moody's Analytics, tells USA Today.
- The plan doesn’t have sufficient incentives to convince lenders and services to participate, says the mortgage industry publication HousingWire.
- “Anything in the hundreds of thousands would probably be seen as a big success” given the program’s poor track record, says the Wall Street Journal’s Developments blog.
- Laurie Goodman, respected mortgage securities analyst (Amherst Securities Group), who has long said modifications will fail unless lenders and investors cut mortgage principal, calls the changes (in a report last week) a huge step forward -- good for borrowers, good public policy and good for investors who own the mortgages.
The (relatively) good news: The changes will come from the $75 billion Congress set aside last year to help homeowners. Most of that money still hasn’t been spent.
And yet, millions more people will still lose their homes.
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