Replies

KC Burke wrote:
The plan is only for Fannie/Freddie compliant loans, only loans under 415, only helps for the portion of the loan that is in excess of the house value, only serves as an incentive to the lender, not a requirement...etc, etc.

According to the info posted on the Whitehouse.gov website (See "Help For Homeowners" for text and discussion), the refinance assistance for people who are current on their payments is for Fannie/Freddie loans only.

But the assistance for "Borrowers Who Are at Risk of Foreclosure" includes forced interest rate reductions, and provisions that payments will be limited to 31% of the borrowers current income (no matter their income when they signed the mortgage contract, or any of the provisions of the contract). If I read it right, the lender must come down to current market rates for fixed rate loans. No ARM adjustments up any more. And if the 31% of income is still below the payment, then the feds (us taxpayers, that is) pay half of interest rate cuts below market, or the feds (us taxpayers, that is) pay half of principal writedowns. And the feds (us taxpayers, that is) kick in $1,000 toward principal each year if the borrower makes all payments on time, up to $5,000 over the first 5 years.

acoulterfan wrote:
This will include reducing PRINCIPALS!

For those at risk for foreclosure, principal write down is an option. The lenders will be required to get payments down below 31% of the borrower's current income (presumably their unemployment benefits if they are unemployed). They can do this by a combination of interest rate cuts and possibly principal write downs. The interest cut down to market rates for fixed rate mortgages come 100% out of the lender's profit. If the interest rates is cut below market rates, loss is split between the taxpayers and the lenders. And the taxpayers pick up half of any principal that is written off.

Thanks for the detailed examination.

I still do not see this as a broad miracle worker as the press will frame it even if it is not limited to Fannie/Freddie for verge of foreclosure category.

Probably a dumb question, but how can the Government force these lenders to refi/restructure a loan to somebody that lost their job and there is no job for the lender in the near or far future?