Here's an update to the Obama Foreclosure Game Plan that was announced last week and how it will affect borrowers. If you haven't picked up the phone yet to call your mortgage servicer, you should. As the rules have changed dramatically. (Source: White House blog entry).
1) Refinance Upside Down Mortgages– Homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac can refinance even if they owe more than their home is worth. Under this part of the plan eligible loans cannot exceed 105% of the current market value of the property.
2) Modify with Any Lender — Homeowners can modifying their mortgage rates through any participating lender, not just their existing lender. There will be uniform rules for loan modifications across the mortgage industry. Lenders would bring down rates so a borrower's monthly mortgage payment wouldn't exceed 38% of pretax income.
3) Government Buys Down Rates – The government would reduce interest rates to bring payments down from 38% to 31% of the borrower's pre-tax income. Eligible loans can't exceed the current conforming loan limits of $417,000 (in most areas) up to $729,750 in high-cost areas (this was just raised). The government also plans on continuing the purchase of mortgage securities backed by Freddie Mac and Fannie Mae to keep mortgage rates down.
Example New Loan Modification:
30-year mortgage of $220,000, house worth $230,000 in 2006 with an interest rate of 7.5%. After an 18% drop in their home value, they're now underwater in that loan: The family has $214,016 remaining on their mortgage, but the home value has fallen to $189,000. By reducing that family's rate to a government-sponsored 4.42% for five years, they'd save $406 a month, according to White House figures.
That extra monthly money becomes available for spending or savings, and both are good. The more money people have available to save or spend helps the overall economy.
I expect more details from both Obama and Geithner this week on their housing and bank rescue plans. And on Tuesday, I will be sharing my plan with my clients on how to find great foreclosure deals right now, from the thousands out there. Do not assume all foreclosures are great deals. You must know how to pick the deals from the duds first, so you spend your valuable time on only the most profitable deals. I'll have veteran foreclosure investor Coach Mary Kay on with me. There's alot for us to cover, so don't miss out.
You must register first here. Talk to you Tuesday!
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{ 2 comments… read them below or add one }
How about people who have mortgages that are not backed by Fannie or Freddie what kind of help do we get?
I think that the overall plan is good, but I also think that there are too many people looking for a handout. That is the kind of thinking that put us in the current situation. Realistically, if you got yourself in a bad situation, that is your fault, and I, and my Son for that matter, should not have to pay for it. You made your bed, now lay in it. No one forced you into your home. You signed up for it, and if you bit off more than you can chew, then it is up to you to choke on it. Stop trying to force it down my throat after you regurgitate.