President Obama just announced his plan to help homeowners, the “Homeowner Affordability and Stability Plan.” You can hear the speech, or read it on the Whitehouse web site. There is a great section with questions and answers. If you are like me, reading an official legal document, bill or act can be challenging. It is helpful to have these questions and answers to go to. Here is a sample of one question:
- How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.
The help to homeowners comes mostly in encouraging lenders to refinance mortgages with lower rates. This makes good sense to me. The banks are still getting paid, but the rates are brought down to today’s reality, making monthly payments easier to pay. There is a huge effort with this plan to give assistance only to responsible homeowners, and not to those who knowingly got into too much house. Evidently there is a concern “out there” that people who have been irresponsible in getting into trouble in the first place would be rewarded with help now, along with rewarding the banks who helped get them into trouble.
However, what I know from hearing the stories is that there are lenders who were not quite honest with people, and got them into these bad loans. People often get into situations where they have to trust their lender, because they don’t know enough themselves to understand the deal. When they are handed a stack of paperwork that is an inch to 2 inches thick, and told they have to sign all these papers to get their loan it is my experience that very few people will actually read these papers. The loan officer can talk a good talk, and confuse people, and people will just take that leap of faith. I suspect the loan officer was thinking of his or her commission for making the loan, and not looking beyond to what happens to the people getting the loan. You know, the old “not my problem” point of view. There seems to be nothing we can do about these unethical people. Their victims are now stuck. I just hope there were only a few rotten apples in the barrel.
The other thing to know is that the details are not quite ready yet. We are now waiting for March 4th to get those final details. After March 4th a homeowner can contact his or her mortgage lender to see about eligibility. In the meantime, gather the following items:
- information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources
- your most recent income tax return
- information about any second mortgage on the house
- payments on each of your credit cards if you are carrying balances from month to month, and
- payments on other loans such as student loans and car loans.
Here is another piece of information that I think is helpful to know:
- How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.
The Whitehouse web site is getting to be a great resource. Because we may want to go there often, I am going to add this web site as a link on this blog. By the way, I am open to suggestions if you think there is another good resource for people that could be added as a link to this site.
CNN has an article here concerning the plan. They mentioned that the plan includes not only carrots to encourage lenders to modify mortgages, but also a few sticks, for example:
But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.
There are still going to be foreclosures, but this plan is expected to slow things down. The other part of this is that if homeowners can modify their mortgages so their monthly payments are now reasonable, they will be more likely to feel some confidence in their economic situation. Our economy needs that confidence before people will begin to stop hoarding their money, and think about buying the things they need, or just happen to want.
The good news for real estate is that the plan includes every effort to continue to keep mortgage interest rates down. We now have the $8000 credit for first time home buyers, and continuing low interest rates to persuade buyers to get off the starting line and look for that new home. If they can also have confidence that home values will stop their plummet downward, that is also a very good thing.
I will be curious to see how the talking heads of the corporate media explain this plan tonight. Watch for the adjectives and adverbs that so-called objective journalists use whenever they tell us about the news. There is no longer any such thing as objective journalism — if there ever was.
Tags: banks, fannie mae, freddie mac, housing, lenders, loans, mortgages, plan
