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MORTGAGE RELIEF?
February 20th, 2009 5:07 PM

Dear Friends,

On Wednesday, the President offered a plan to stem the tide of foreclosures by providing incentives to banks and lending institutions to provide financing for those homeowners in need of assistance.

The attempt by the federal government to help stabilize the housing market is appreciated, however the $75 Billion associated with this plan will not offer the mortgage relief hoped for.

This problem is complex and needs an experienced and knowledgeable individual at the helm. In my estimation, there are several options or set of problems which need to be explored and resolved.

The plan revolves around homeowners who currently have a first deed of trust on a primary owner occupied residence. The principal balance of the mortgage cannot exceed the current Fannie Mae or Freddie Mac conforming loan limits which are currently at $417,000 for a Single Family Residence. Moreover, there are homeowners that are 'underwater', whereby they owe more in mortgages than the value of their property.

In order to prevent homeowners from being delinquent on their mortgage payments, the government encourages a loan modification or a refinance in order to stall the inevitable. Lowering the interest rate so the mortgage holder is able to pay the note on a timely basis to a 31% Debt To Income Ratio will begin to stabilize the housing market, a goal agreed upon by the Obama administration and FDIC Chairwoman Sheila Bair. 

As previously mentioned, there are homeowners who owe more than the current value of their property. Presumably, the lender will lower the principal mortgage balance to accommodate the guideline of a 31% debt ratio.

While this is the plan being discussed by the administration, as in all government intervention and programs there are pitfalls. Let me explain. 

Who Qualifies?

1. Homeowners who have mortgages exceeding the conforming loan limits over $417,000, will not qualify for this plan. In order to lower the current mortgage payment, the homeowner would either refinance or secure the services of a loan modification company. The negotiator will work on the homeowners' behalf to lower the mortgage payment. The owner can also negotiate with the lender directly in order to save the up front fee charged for a loan modification.

2. If you have a sub prime or a private money loan, you will not qualify for this plan. Many of those facing foreclosure or are struggling to pay their mortgage, obtained their financing from lending institutions which were not approved by Fannie Mae or Freddie Mac. The only options afforded the homeowner with this particular problem are similar in scope as previously mentioned.

3. Many homeowners that are self-employed, may not qualify for this plan. Self-employed borrowers have a difficult time in documenting income as many write off their expenses or receive their wages in cash. If this is the case, a loan modification company might be able to help.

4. Retirees or those on fixed incomes might not qualify for this plan. If you are a homeowner in this predicament, where you are struggling to pay your mortgage, there is a chance you might be able to present your case so the lender can lower your payments. It is my understanding the upcoming underwriting guidelines to be announced on March 4th, will provide additional information on how to proceed in this matter and the plan itself. 

5. If you have a second deed of trust or an equity line of credit on your home, this plan will not be able to help you. The logical and most effective way to help homeowners in distress is to consolidate the current 2nd into a new 1st trust deed, thereby lowering the monthly mortgage payment.

6. If you have a bankruptcy, have a low middle FICO score or have credit problems, you might not qualify for this plan. Conforming underwriters frown on those with credit challenges and the lender must be thoroughly convinced your past or current delinquent mortgage payment history will no longer pose an issue in the future.

7. If you owe more on your mortgage than the value of your house, you might not qualify for this plan. It is my understanding a homeowner will be able to have the mortgage principal reduced if the conforming loan amount guideline is $417,000 or less. Let's say the homeowner owes $300,000 while the property value is $150,000. In this scenario the new plan will cut in half his principal, thereby the homeowner will now owe no more than $150,000. His lender will lower his monthly payment accordingly.

In another scenario, let's say the homeowner owes $500,000 and the property is worth, $300,000. In this instance the borrower must apply for a loan modification or contact his lender directly to either lower his monthly payment, lower the principal balance, give the property back to the lender under a deed in lieu of foreclosure or have the lender provide the time needed to sell the property under a 'short sale'.

The Facts

It has been reported that 92% of all homeowners in this country are weathering the storm and are paying their mortgage obligations in a timely manner.

There were 2.2 million foreclosures in the US for all of 2008. An additional 6 million foreclosures are being forecast in the coming years due to the loss of employment, higher monthly mortgage payments due to adjustable rates set to change this year, and the progression of home values spiraling downward. With these figures and the circumstances Americans are now witnessing, there needs to be a national debate on where all of this activity is headed.

Fairness And Our Future

While many Americans are suffering the loss of their homes due to unemployment or the inability to make prudent and wise decisions in purchasing a home at the outset, the situation we now face affects us all. The foreclosures in our communities devalues our properties by lowering our equity and creating a chronic prophecy of financial hemorrhage in our economy which needs to end. 

Most Americans have the wherewithal to pay their mortgage, their taxes and to live their lives as law abiding citizens. Unfortunately, the financial calamity we are in today, began with the same crowd of evil participants in government and on Wall Street. Their theology of greed, corruption, hubris and incompetence were 'virtues' painfully displayed for us as we sat back and took notice. The pain we are all suffering, emotionally and financially, is a wake up call to throw them out on their ears in the mid-term elections in 2010. It is truly unfortunate there is no one in government today worthy of our trust.  While this new 'rescue plan' is unfair for many of us who play by the rules, the only consolation we have is to be involved in all aspects or issues in regards to the magnitude of government intervention we are now experiencing in our daily lives. It is sad for me to say, these experiences are of our own making and must not be revisited again in our lifetimes. It's time to save this country for our children and future generations of Americans.

 Next Week On The TeamBlog

The effects of the $787 Billion 'Stimulus Bill', additional information in regards to the new mortgage rescue plan and the just signed California Budget.

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Posted by Jesse Dorado on February 20th, 2009 5:07 PMPost a Comment

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