The Obama Administration Announces New Plan for TARP Funds

The Obama Administration rolled out its much awaited foreclosure-prevention plan they will use the second half of the TARP funds for on Wednesday, saying it could help as many as 7 million to 9 million homeowners meet their mortgage payments. Some of the Key components include modifying the terms of delinquent loans, refinancing underwater mortgages and putting more money into the federal housing agencies in order to keep mortgage rates low. But will it work?

The fact of the matter is that while the housing market may have started the devastating decline of our economy, we now have a record number of people out of work, and even more on the horizon. However, this plan may be a good start as it is a series of targeted interventions designed to help specific groups of borrowers and by doing that, it’s hoped, limit the damage caused by foreclosures both to neighborhoods and to the overall economy.

The idea in this new plan is to use TARP funds to restructure the loans of homeowners who are behind on their mortgages or, and here is where the plan may do some real good, those who are an imminent danger of falling behind. The Obama Administration is keenly aware that up until now, only homeowners that were already behind on their payments qualified for government assistance, which only made the problem bigger. Now, those of you that have been struggling to keep up and have somehow managed to scrape by have a chance of reducing your mortgage as well. Up to now, homeowners had to wait to default before they could even get a return phone call from their bank. However, some people are saying that this new plan won’t do a lot of good because it gives much of the power to make the decision on who gets help and who doesn’t to the lenders.

The Obama Administration accounted for this though and added incentives to lenders that cut the interest rate on loans to help reduce homeowners’ monthly payments. The plan is to pay lenders $1,000 every time they do this, but they have to reduce the borrowers’ payment down to 38% of their gross income, which is quit a bit. But the $1,000 will be paid out for three and five years for keeping the loan current. This doesn’t sound like much of an incentive, but given the economic pressure banks and lenders are under, every little bit helps.

Another criticism of this plan for the second half of the TARP funds is the fact that the Obama Administration didn’t make it mandatory for lenders to make these deals, and with the lack of help many homeowners are getting, the fear is banks won’t spend a lot of their time on these restructured mortgages. But given the fact that policymakers had to walk a fine line between helping borrowers who have been caught off guard by tricky mortgage products and falling house prices and those who simply made imprudent decisions and genuinely can’t afford their homes, it is at least a step in the right direction. In order to avoid propping up the second group, Treasury won’t subsidize loan modifications that reduce the interest rate below 2%. If you can’t afford a 2% mortgage, in the eyes of the government, you can’t afford your house. The plan also doesn’t apply to investors or people with jumbo mortgages — those, historically, larger than $417,000. Loans for homes that would be more valuable to lenders if repossessed won’t get modified.

As to how much the Obama Administration’s new plan will help, that remains to be seen. However, we all know how dismal the results were for the first half of the TARP funds, so we should at least be better off than we are now. Mortgage lenders will have to really get on the ball in order for it to work, because deciding who gets the reduced interest is in their hands. How about you homeowners? Do you think this plan will help you out? How about the lenders out there; do you think it’s too much pressure on you? I really want to know what the rest of you think about this plan, and if you believe there was any better alternative. Please leave your comments, questions and suggestions, and let’s keep the conversation going.

The Foreclosure Process; Can it be Stopped?

The foreclosure process is still steamrolling through America. While President Obama has promised to put the second half of TARP funds to better use than the first half, it still may take a while before the real estate industry and homeowners see any relief from what has become a long, arduous journey. Until things begin to improve, here are a few things you need to know, to stall or prevent going into foreclosure.

Mortgage lenders naturally want to recover as much money as they can from the loans they provided homeowners. While a foreclosure isn’t ideal and won’t get them even half the money they originally put out, something is better than nothing…at least that’s the way they look at it. So in order to save your home from the foreclosure process, you have to show them the money. But before you do that, keep in mind what Mike Himes, a housing counselor for the nonprofit group NeighborWorks Homeownership Center in California has to say; “troubled homeowners need to be realistic about their ability to pay. He says that there have been many borrowers who have swiped their cards for $20,000 on their credit cards only to be forced out of their homes later on.” Trying to appease the mortgage lenders this way can end up costing you more than you can ever repay, in the end.

If you don’t have the money to give to your mortgage lender to save your home from foreclosure, the best move is for you to call them weeks before your next amortization is due. The reason for this is that you will be considered delinquent the day after the due date if it is not paid, so you want to take control of the situation before you become part of the nasty real estate statistics that are out there right now. That being said, homeowners usually have grace periods of up to 15 days to pay what’s due.

When the call comes from your mortgage lender regarding delinquency depends on your payment history with them. I know as a homeowner that this is not the call any of us wants to get, especially when it comes to something as sacred as our personal real estate. But, if they do, here’s what you can expect according to Wells Fargo Home Mortgage executive Joe Ohayon, “if you frequently pay in the middle of the grace period, you will not be called before that point. If you have been a good payor, the calls will just be reminders and not direct collection calls.” So there does appear to be some consideration for the type of customer you have been.

If the worst does happen, and a homeowner receives a notice of default of foreclosure, they still have 90 days to negotiate with the lender to save their real estate. For example; you could still negotiate a loan modification, a short sale or a temporary moratorium. While these are some of the things you can expect when your home is under threat of foreclosure, every situation is different and every mortgage lender is different. Ultimately, until we begin to see some results from the second half of the TARP money, homeowners are going to continue to lose their homes, and banks are going to continue to lose money, which is the vicious cycle that got us into this mess in the first place. What about all of you, what have you done or heard of other people doing to save themselves from foreclosure? Is there any real help out there, or is it just a bunch of smoke and mirrors? Please share your experiences with the rest of us and post any comments, questions or suggestions you may have.

If you are in jeopardy of losing your home, visit www.hud.gov for guidance on what you can do. 

Fannie Mae and Freddie Mac Roll Out New Deal for Homeowners

There’s finally some good news on the real estate front; “Fannie Mae and Freddie Mac have directed their network of servicers to halt all foreclosure and eviction proceedings between Nov. 26 2008 and Jan. 9, 2009, meant to give a recently announced rescue plan time to work,” according to money.cnn.com. It’s been a few months since these mortgage giants got bailed out by the government, and this is the first sign that they are finally doing something to try and at least help, if not fix, the problem they helped create in the housing market.

This action is meant to keep homeowners afloat while they await the start of the Streamlined Modification Program, which begins Dec. 15, and will allow homeowners behind in their mortgage to get a modified mortgage to no more than 38% of their gross incomes. Some people may feel as though this is bailing out those who never should have gotten into the real estate market to begin with, but the fact is that home foreclosures hurt us all, by lowering home values and draining our economy.

Notification to the homeowners who have already received eviction notices and/or have homes up for auction, should begin immediately, which should make for a much brighter holiday season. Unfortunately, homeowners who are in jeopardy of eviction between Nov. 20 and Nov. 26 will not get to benefit from this new deal; however, they may qualify for other deals offered by FHA.

This is good news, to be sure; however, it will boil down to a small percentage of homeowners in the shaky real estate market, even though Fannie Mae and Freddie Mac hold the mortgage for approximately half of the people currently in the housing market.

There are several factors that will go into the eligibility of this new deal. First, homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy. Again, it’s a good offer, but will only end up helping a small percentage of people, so I wouldn’t say it’s going to put a huge dent in the housing crisis.

On the up side, something has to be done and at least this is a start. The real estate industry is a vital part of our economy, and even the global economy as a whole. Things will get better in the housing market, but it may take a bit longer than we originally thought. Holding off on at least some of the foreclosures out there, is a good first step.

 

     

How Foreclosures Are Affecting Renters

As if the number of home foreclosures wasn’t bad enough news, now we hear they are affecting people who rent as well! You may think that renting real estate, whether it be a home or an apartment, is the safest thing to do right now, but you might be wrong. With the influx of former homeowners in the rental market and the housing market being what it is, the competition for low-rent housing has gone through the roof. Add to that the fact that renters are facing eviction due to the properties they’re living in being foreclosed, and you have a sticky situation.

 

Moreover, because many of the high-risk home-purchase and home-refinance loans now in default are concentrated in low-income and minority communities, the fallout from foreclosures is hitting the same neighborhoods where many of the nation’s most economically vulnerable renters live. So now there are homes sitting vacant because the former homeowners walked away or were forced out in the same housing market as the rental properties these displaced people were forced to move to. How frustrating it must be to see the real estate you once owned outside your apartment window…even worse, you may get kicked out of there as well because the apartment owner can’t pay his mortgage either.

 

Just to give you an idea of how much rental real estate is affected, the number of renter households rose by nearly one million last year, which is more than four times the pace of renter growth between 2003 and 2006, according to the center’s report, “America’s Rental Housing: The Key to a Balanced National Policy.” The U.S. median monthly gross rent reached a record high of $775 last year. Add to that the mess the credit market is in because of the shady practices of some mortgage lenders, and you can see how the housing market got into the mess it is in.

 

Another problem facing the rental real estate market is the fact that those low-interest and creative financing deal mortgage lenders were offering enticed companies to build much faster than they had before. Assuming they would get a quick return on their investment, these builders kept taking out more and more loans to build more and more housing, and of course they now find themselves in the same predicament as the single-family homeowners.

 

In short, the demand for affordable rental housing is increasing while the supply of low-cost units is declining; it’s a simple matter of supply and demand. That’s why it’s so important to add rental properties in the debate, with regards to the housing market. Homeowners weren’t the only ones devastated when the housing bubble burst. The silver lining in all this may be the fact that it is now becoming a buyer’s market, so people who can’t find affordable rental units may want to consider purchasing a home. Of course this only works for the people who didn’t end up in foreclosure and have the credit to get approved by a mortgage lender. So what can everybody else do?

 

The current conditions provide an opportunity to transform the inventory of foreclosed and vacant properties into affordable rental housing. With all these houses going into foreclosure, banks, mortgage companies and homeowner are desperate to get rid of them, which means the price of real estate is going down. These deals in the housing market aren’t just for the homeowners, real estate investors who have a mind to can buy them up cheap and use them to subsidize affordable rental properties for the plethora of people on the market right now. This solution doesn’t have to be considered charity, because any investor who does this will still make a huge profit, again because real estate is starting to get cheaper and cheaper.

 

Currently adding to the rental inventory on the higher end of the rental market are the vacant condos and houses that owners are renting out due to weak home-buying conditions. However, many renters don’t have the income required for those rentals, which is why the housing market needs more diversity.

 

The real estate industry will survive and even thrive again, it always does. But will these former homeowner, renters and investors of affordable housing come out of it ok? That’s the question will all need to be asking ourselves.

 

If you are thinking about buying a home, selling a home, refinancing a home or simply want to know what your home is currently worth, please contact us at Mahler & Associates.


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