Mortgage Loans and Interest Rates
What's In The President's Plan To Help Responsible Homeowners and Heal The Housing Market?
I make my living in the housing industry. The whole country has suffered the past few years because of the problems created by the mortgage mess. The housing industry is still struggling to get back on it's feet.
In his State of the Union address and in subsequent speeches President Obama has been talking about his "Blueprint for an America Built to Last."
I got a copy of the plan to see what it is all about. To see a copy click on:
While I want as much as anyone for the housing market to come back reading the plan I have to wonder if it's a plan for recovery or a political document to help with getting elected.
A big talking point has been the Homeowner Bill of Rights.
The first two points are:
Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out.
In 2009 the government designed and mandated that the lending industry use the current Good Faith Estimate now given to borrowers. I took hours of classes learning to complete it correctly and real estate agents took hours of classes learning the new HUD1 form. I'd welcome a simple form but blaming the industry for the current confusion is just wrong.
Full disclosure of fees and penalties.
It seems they don't know they also passed legislation holding lenders responsible for the fees that are disclosed to a borrower at application. A lender is financially responsible for under disclosingfees (even fees they don't control) including those charged by title companies and state and count recording fees. Anyone who has been to a settlement is familiar with "Charges That Cannot Increase, Charges That in Total Cannot Increase More Than 10% and Charges That Can Change."
The plan also calls for Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work.
Now don't get me wrong. This crisis has created a lot of pain for a lot of people and they need help. But is letting them not pay their mortgage for a year a solution to the problem or are we "kicking the can down the road" for someone else to worry about.
Who hasn't heard Congress and the President rail against the abusive loans that caused the crisis. (A side note: all the loan types weren't bad. They just got to liberal in underwriting and approving them)
The plan calls for Providing Non-GSE Borrowers Access to Simple, Low-Cost Refinancing. It has been proposed that "The refinancing program will be open to all non-GSE borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA."
Simple and straightforward eligibility criteria. Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:
* They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more that one payment in the 6 months prior. (Sounds reasonable to me.)
* They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers will have a credit score adequate to meet that requirement. (If you want to get a new loan most loan programs want a minimum 640 FICO score. By meeting certain criteria you can lower the FICO score to 620.)
Streamlined application process: "To determine a borrower's eligibility a lender need only confirm that the borrower is employed." (Sound's like the no-doc or no-income loan they have said were bad and don't allow any more.) "Those who are not employed may be eligible if they meet other requirements and present limited credit risk." (I'd love to know what those requirements will be.)
The program will be funded by "Creating a separate fund for new streamlined refinancing program. This will help FHA better track and manage the risk involved and ensure that it has no effect on the operation of the existing Mutual Mortgage Insurance (MMI) fund." (So were taking loans that were made in the private sector and giving them a government guarantee and if they lose money well take it out of the left pocket instead of the right pocket? To me a loss is a loss)
Now to pay for the program the Refinancing Plan Will Be Fully Paid For By a Portion of Fee on Largest Financial Institutions: The Administration estimates the cost of its refinancing plan will be in the range of $5 to $10 billion, depending on exact parameters and take-up. The cost will be fully offset by using a portion of the President's proposed Financial Crisis Responsibility Fee, which imposes a fee on the largest financial institutions based on their size and the riskiness of their activities - ensuring that the program does not add a dome to the deficit. (And do you thing "the largest financial institutions" are going to absorb that fee or is it more likely to be passed on to all consumers through higher fees and other cost. Are you aware the "Two month tax holiday passed in December is being paid with higher fees being charged by Fannie Mae, Freddie Mac and FHA. The new fees will be in effect for 10 years to pay for a 2 month thx holiday.)
I've been getting a lot of questions about HARP2 refinancing program which was announced in November. It's my understanding that the automated engines used to underwrite these loans will be ready in mid-March. I still an waiting to get details of what the requirements will be.
I'd love to hear your feedback on the proposed Plan To Help Responsible Homeowners and Heal The Housing Market.
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Senior Mortgage Consultant
PrimeLending, A PlainsCapital Company
704 Quince Orchard Rd., Suite 230
Gaithersburg, MD 20878