Yes, you have probably heard the news they are getting closer to passing a bill that would help home owners that are struggling to make their mortgages. According to the California Association of Realtors (CAR) market watch update, a bill that will assist nearly 2 million borrowers in danger of foreclosure was passed by the house this week. The bill basically will provide security, through the FHA, for banks to refinance what would previously been considered risky loans. The FHA will also “guarantee repayment up to $300 billion in mortgages if a lender agrees to write down the loan principal below a home’ current appraised value”. According to the summary other items in the bill include:
- Tax credit for first time buyers.
- States will also be given the authority to issue almost $11 billion tax exempt bonds to refinance subprime loans, provide loans to first-time home buyers and fund the construction of low-income rental housing.
- Permanently raise the limit to $625,000 for mortgages that Fannie Mae and Freddie Mac could purchase.
The bill is now off to the senate and then to Mr. Bush for an expected approval.
There are some details that go along with the plan:
- To qualify you must live in the home and have loans that were issued between January 2005 and June 2007.
- They also must be spending at least 40 percent of their gross monthly income on all household debt.
- A home owner does not have to be in foreclosure but must prove they will not be able to afford the payments.
- If the home owner is to receive a FHA backed loan, home equity lines and credit lines on the home must be paid off.
- Buyers are also on hold for taking out equity lines for 5 years unless it is approved by the FHA.
- Total debt on the home can not exceed 95% of the appraised value.
Of course for this to work, the original lender (s) must agree (volunteer) to rework the loan before the process can begin. An insurance premium of 1.5% of the principal will be required and paid to the FHA.
The reason why this may work is because this may be the only way banks can work these loans or any other loans over the next couple of years. With the investment community not wanting in real estate back securities, the FHA must be the “investor”. Which really means, you and I as tax payers. This also doesn’t address the fact that many of these loans were stated income loans and these homeowners will probably not be able to prove income under the new lending standards to qualify for a re work. However, this will address those who honestly bought homes and then had the market crash around them right when the rate was adjusting. It may not be the answer, but is more than most are getting from their lenders currently. I will be interested to see how it really plays out. For another more assertive opinion, read this article.