Aid for “Responsible” Homeowners: Higher Loan Limits

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Ever feel like your good habits are cutting you out of the action? Watching your profligate neighbors who can’t afford their homes and never could get loan mods can do that to you. Watching AIG shovel money out the door while you’re watching every dime has a tendency to prickle as well.

Well, now responsible homeowners even in Southern California which normally seems left to fend for itself are getting a piece of the pie. If your loan was purchased by Fannie Mae or Freddie Mac, the cap for refis expired at the end of December, reducing eligible loans to $625,500. Yes, that’s pricey, but still shuts out far too many homeowners in SoCal. The Obama plan reinstates the higher loan limit of $729,750 for loan modifications and refis.

This amount was selected specifically to target higher-priced areas such as Los Angeles and Orange Counties. No doubt others areas of the country will benefit as well, but by far the greatest impact will be here.  Of course, just having a higher-priced loan does not automatically qualify the homeowner for the new structure under the Obama’s refinance  plan, called Home Affordable Refinance.  Homeowners will be able to refinance up to this amount providing the that loan is not more than 105% of  the current value.  That is, the current market value of the home must be at least $766,237.

If this criterion cannot be met, the homeowner may be eligible for a loan modification under another program in Obama’s plan, Home Affordable Modification. This program will help the homeowner suffering distress lower the monthly payment to 31% of income. In most cases, the lender would reduce the rates to as low as 2% for up to 5 years, or temporarily lower the loan balance or extend the loan to as long as 40 years.

Of course, either program requires the homeowner to have the capacity to pay the refinance or the modified loan. Seeking such aid, the homeowner must provide financial information as well as supporting documents. Finally, something that will help Southern California!

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Homeowner Stability Initiative=Obama’s Housing Plan

We in these hard-hit states with many foreclosures [CA, FL, NV, AZ] have been waiting for this plan and now we have it. It’s not what we expected, at least not what I expected, but what creative ideas on how to handle the foreclosure crisis and not reward the foolhardy or the fraudulent.

The Obama Homeowner Plan has three distinct parts:

1. Help those who are CURRENT on their mortgages to refinance. They do NOT  need to show a hardship.

2. Help for those who are BEHIND on their mortgages get loan modifications. They DO  need a hardship, but that is broadly defined.

3. Help for HOME BUYERS by providing tax credits and low interest rates.

The main complaint that stable homeowners, especially those in areas, like ours, hit hard by foreclosure is that their tax payer dollars are going to “save” the imprudent, the insolvent and the extravagent. This plan tries mightily to avoid helping those kinds of borrowers. When introducing it, President Obama was very determined to point out that this does help even good payers who have never missed a payment. “Every foreclosure reduces neighboring home values around 9%,” he said, “and this will help prevent foreclosures.”

I do hope he is right. I do know that nationwide foreclosures are up 81%  over 2008 and 226% over 2006. This crisis hits about every state with the BIG FOUR, California, Nevada, Florida and Arizona, leading the plunge.  It’s also estimated that by 2012 8.1 million homes or 16% of all homes will be or have in foreclosure. That’s frightening.
foreclosure-next-exit

In sum, I don’t know whether this plan will work. I can see already that more people, even those upside down on their home value will be able to refinance as this plan makes it more palatable for the lenders. If they can’t refinance, they can get a loan mod more easily.  Failing those remedies, the plan even smooths the way for short sales which can take forever.