Obama’s Plan: Help for Small Investors

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Yes you read that right. Obama’s plan will also help you refinance if you have rental properties. Last week Fannie Mae and Freddie Mac announced they would refinance rental and second homes as part of the Obama administration’s housing relief effort.  That is a relief! It seems that finally these lending giants have realized that helping small investors will also help renters and if nothing else provide homes for the foreclosed upon.

Here’s the skinny. First, the loans must be owned by Fannie or Freddie. If you don’t know, call your servicer to find out or go to Fannie and Freddie websites. If your loan is with another entity or a private lender, you will not be eligible.

Just as with owner-occupied properties, the loan to value ratio cannot exceed 105% and that is up to $729,750 loan amount.  Let’s say you bought a duplex or a fourplex a few years back for $500,000 with a first mortgage of $400,000 at 7.5% and that loan has now been acquired by Fannie Mae. You may well be able to refinance into todays 5% and 6% rates, thereby greatly increasing your cash flow. Even if the value of your property has dropped in the intervening few years, as long as the current market value is at least $420,000, you can do it.

Of course, you do have to be a good prospect for a refi. Your payment history on the loan should be close to perfect–no 30 day lates in the past 12 months. Even if you’ve had other financial woes which may have tanked your credit score, it’s still possible because Fannie and Freddie have agreed to waive their usual minimum score requirement and you won’t have to pay for new mortgage insurance [pmi].

You will have to show income to qualify–often investment income from the building is enough–and there will be the usual closing costs which will increase your loan balance.

All in all, though, this is a great deal!

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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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