Obama’s Housing Plan: Problems for California

Obama’s recently announced Housing Stabilization Plan is good as far as it goes, and it goes $25 billion worth. California will get a good chunk of that taxpayer dough, but many homeowners here will not be able to benefit from the plan.

Refinancing becomes an option for some because Obama’s plan allows for refis up to 105% of equity. Say you owe $300,000 on your home. You could borrow up to$315,000. That’s a better deal than the normal 80% of equity allowed for a refi, but it’s hardly going to help much in California where prices have tumbled 25% to 50% or even 70%, depending on the area,   in a bit over a year.   Plus, of course, anyone who refinances must have the income to qualify.

Then, there’s the loan modification option, also sweetened considerably by Obama’s plan. For one, borrowers who have struggled to stay current are now eligible for loan mods as well as those who have missed payments. Here’s the problem, though, if you want a loan mod, you need to show income and unemployment is not acceptable. With California’s zooming unemployment rate, many who need loan mods won’t be able to get them for lack of income. Across the country, nearly 12% of homeowners are in arrears on their mortgages or already in foreclosure. This is a disaster not only for the homeowners, but for all of us . In California, the latest figures show 13% in arrears or in foreclosure as compared to, say, Florida where 20% are in that position. .

Besides job loss, another huge factor is loss of value. Estimates of homes  with  negative equity vary, but it’s around  12 million homeowners, about 25% of all homeowners in the U.S. either now owe more than their homes are worth or are within 5% of being so. Almost 2 million Californians are in that unfortunate situation with about 300,000 in the L. A. area. A research firm, First American CoreLogic, estimates that 723,000 California mortgages are in “severe” negative equity with loan amounts 125% or more of the home’s value. That’s about one-third of the country’s 2.2 million such loans.

house-in-watersmall

Other states have greater percentages of loans in trouble, but smaller populations and so fewer loans. Nevada, for instance, has 330,000 underwater loans, very similar to the L.A. area, but that represents an astounding 55.1% of all loans in Nevada. Michigan, economically sick for a long time, has 459,000 such loans or 40% of all loans in the state. Arizona has 31% of its loans underwater or 407,000. Florida, far more populous, has 30% of its loans in negative territory, but that’s 1, 284,000 loans. California, as mentioned, has 1, 900,000 or 29.5% of its loans underwater. Thus  the Big Four which  account for almost half of all the foreclosures in the nation. Rounding out the top ten are Georgia [23%, 335,000], Ohio [23%, 435,000] Colorado [21.5%, 225,000], New Hampshire [20%, 33,560] and Virginia [19.6%, 219,282].

Obama’s plan will help California, but, clearly, with our gigantic population so many cannot be allowed to go under. Obama and company need to come up with more creative ways to help California’s underwater homeowners.

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Refinancing with Obama’s Plan

Southern California
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For most of us in Southern California, the wonderful new mortgage rates of 5% and below are unattainable dreams. The reason? You can’t refinance if you owe more than your home is worth. In fact, traditional refinances are only for those who have at least 80% equity in their homes. With home values dropping like stones around here, that’s not easy.

Obama’s recently announced Housing Stabilization Plan is changing all that. The plan, announced last week, is specifically targeting those homeowners who are making their payments and attempting to be as responsible as they can. It’s difficult, though, to continue making the $3000 a month payments on your $430000 mortgage when your home is worth only $330,000. It’s tough paying that 7% or 8% rate, looking forward to the balloon in a couple of years, when you know that 5% or 4% rates are currently available.

Details of the new plan will be announced next week, sometime after March 4th, but we do know a few parts to the initiative. It will be for owner-occupied properties. The plan specifically eliminates “speculators” or “flippers” and targets owner-occupied properties. Word is, though, that properties that were primary residences and then turned into rentals as the owner-occupant moved into a better home may be considered.

Beyond this, we know that the plan will allow up to 105% of loan to value instead of the traditional 80%. The example given in the white paper from the White House is the following: A family purchased a home for $260,000with a 30-year mortgage of $207,000 at 6.5%. Today, the family owes $200,000, but the value of the property is now $221,000. They can refi with the new plan at 5.1% and save $2300 per year.

And we know that the first mortgage is what will be used to make the determination. Rates of 3% and 4% have been mentioned. The Obama administration thinks that about 4 to 5 million homeowners might be helped with this plan.

Of course, refinancing means getting a new loan. The borrower must be current with his existing mortgage, have good credit and have the income to qualify for the new loan. Also, as with any refi, costs do accrue for appraisal, title insurance and other closing costs, most of which can be added to the balance of the loan.

Can’t qualify for a refi? Not to worry–maybe you can get a loan mod. Stay tuned. That’s for the next post.

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