How Obama’s Housing Plan Will Affect the Short Sale Business

Here is what Obama’s plan is all about on the surface  

Watch CBS Videos Online

 This is what the Video does not tell you:   

This is an excerpt from the White House Blog here:

http://www.whitehouse.gov/blog/09/02/18/Help-for-homeowners/ 

My comments are in blue below:  

Questions and Answers for Borrowers about the
Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan.   Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

D.C.:  Fannie Mae and Freddie Mac Loans are not the problem. It’s the   subprime loans that are the issue!   

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

D.C.: Most homes that we are working on the homeowners owe 130% or more of the current market value of the home. This plan says that the only homes that qualify are homes that the first mortgage including refi costs will not exceed 10% of the value. This does nothing for our customers so this creates an ever greater need for them to need a SHORT SALE. 

• 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.

D.C.: This only helps people with Fannie and Freddie loans and you need to prove your income to qualify which means you need to have job. This does not help people that just lost their jobs and the homeowners that have subprime loans. These are the folks that REALLY need the help. Why is the government helping people that don’t need the help?  

• I have both a first and a second mortgage.  Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.  

D.C. : This is a stretch.  

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current.  By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

• Do I need to be behind on my mortgage payments to be eligible for a modification? 

No.  Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default.  This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.   

D.C. This does not help people that lost their jobs. These people will need a short sale. 

• 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.

D.C. This does not help people that lost their jobs. These people will need a short sale.   

•  I do not live in the house that secures the mortgage I’d like to modify.  Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No.  For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible.  If you used to live in the home but you moved out, the mortgage is not eligible.  Only the mortgage on your primary residence is eligible.  The mortgage lender will check to see if the dwelling is your primary residence.

D.C.: Only applies to owner occupants so all of the investors that are upside on properties facing foreclosure will need a short sale more that ever.

• I have two mortgages.   Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

• I owe more than my house is worth.  Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford.  Lenders are likely to lower payments mainly by reducing loan interest rates.  However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

D.C. They are still going to have negative equity in the home of 30% -40% even if they qualify for the Plan. It has been proven with government statistics that more than 50% of all of the completed loan mods went back into default again.  

• I heard the government was providing a financial incentive to borrowers.  Is that true?

Yes.  To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan.   The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt.  Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

D.C. That’s nice of them. What if you are negative $150,000. Are you going to stay in your house 5 years making a bigger payment than you can make down the street to now be $145,000 negative 5 years later. I don’t think so. 

I do want to see our millions of homeowners in foreclosure in a better situation. I appreciate the government is doing SOMETHING. It would be nice if they would do something for the people that actually need help. Until, then we are on our own to help as many homeowners as we can.  

For most, a short sale is their best option and we are the best solution for them. This Housing Plan proves that our services for short sales are in need more than ever.  

Please post your comments or questions below and join the conversation.  If you have a question you’d like me to answer, post it below and I will try to get to it as quick as I can.  

D.C.