Subscribe to this BlogGovernment greenlights more underwater refis
Based on the comments about an earlier post covering a government-assisted mortgage refinancing program, I don't think you're going to like the latest news out of Washington.
Late last week the Obama administration loosened the eligibility rules for the refinancing arm of its Home Affordable Plan, designed to help home owners who want to take advantage of lower interest rates but haven't been able to refinance. As a result of the change, home owners whose first-mortgage balance is up to 25% higher than their house's value can qualify for the federal refi program. When the program launched a few months ago, the upper limit was 5% under water, but that proved too stringent; the government raised the LTV ratio to 125% because not that many folks were qualifying for the program that the Administration launched with expectations — hopes? — of helping up to 4 million homeowners.
In making the official 125% LTV announcement, the Federal Housing Finance Agency added that it is “incenting” these borrowers to get out of their negative-equity morass sooner rather than later. But it turns out the incentive is nothing more than suggesting that folks choose a shorter mortgage term — say, 25 years rather than 30 years — and thus qualify for a slightly lower mortgage rate.
That’s not exactly a rip-roaring special incentive. It is no different than the incentive all lenders offer all borrowers who opt for a shorter term, whether part of a federal bailout program or not. The typical spread between a 30-year fixed-rate mortgage and a 15-year mortgage, for instance, is one-half a percentage point; Freddie Mac’s most recent mortgage survey reports an average rate of 5.4% on a 30-year fixed-rate and 4.87% for a 15-year. In essence, the special “incenting” held out by the FHFA seems to be nothing more than now allowing folks to take advantage of a common industry practice: Choose a 15-year, 20-year or 25-year mortgage and you will be eligible for a lower interest rate than if you choose a 30-year term.
And you really have to wonder how enthusiastically home owners will jump at taking on the higher monthly payments that accompany a shorter-term loan. Are we really to expect that someone up to 25% under water is in a rush to build up equity? Or, as is more likely, are they turning to Home Affordable to get their current monthly costs as low as possible so they can stay in a home they might otherwise not be able to afford?
Why is everyone always focused on saying they are bailing out those who made bad decisions. Wake up. These people do not want to lose their homes and did not make bad decisions. A majority of them lost their jobs. Let's fix the job situation and the homes issue will fix itself.
The lenders rigged the market! They gave loans to everybody. This obviously increased the demand side of the supply/demand equation. It was this that pushed prices into the stratosphere. The lenders knew what they were doing and the public had no clue that the lenders were severely overinflating the market. Lets put the blame where it belongs, on the greedy money lenders.
Congratulations Pres Obama and Staff you have rewarded the bad behavior of greedy Wall Street and the Banks still standing. Shame on American citizens if you have not watched "House of Cards" on MSNBC. It has been played several times. Did you watch it Pres Obama or Ben Bernecke?
You want the whole truth buy this months RollingStone magazine with the Jonas Brothers on the front. Forget the other nonsense go directly to page 52 "The Great American Bubble Machine, Goldman Sachs".
There it is America, in plain English, black and white exactly why we are where we are at this time in our history. Total manipulation. Wall Street masterminds that are the puppeteers of Washington. I have sent 100 copies to local Real Estate, Foreclosure, Bankruptcy and Criminal Attorneys. Hopefully one of them will have the light bulb go off and find the loop hole to make it right.
What a mess. Florida is 150 to 200%+ underwater on home values any hope for us?
Everyone wants to talk about "i dont want to bail the other guy out" but i dont see anybody talking about the governments responsibility to its citizens. People believed the government was regulating these banks, which it was obviously not, and those beliefs lead to peoples decisions to purchase. Blame deregulation, not stupid borrowers who were taken advantage of by unlicensed loan officers lying to them.
Here's the bottom line. I have always been a renter and I've had people telling me I was throwing my money away and that homes were a great investment. Well, investments always carry risks of loss, so people have to own up to their bad investment decisions and take their losses. I've lost money on investments before and will again, but that's the risk you take for the opportunity to make a profit.
Are you people idiots? How do you expect the government to change the value of your home? That is why we are all underwater, home prices were inflated. This program is designed to help people refinance that could not otherwise due to home values. It is not made to help raise the value of your home. The value of your home does not change your mortgage payment.
All i know is that im happy this extension is happening. My 30 year loan is with US bank, and we are current. They did an appraisal, and the value came in way to low for the 105%. This was they end of june. Now, i have contacted them, and they will reconsider my application at the end of this month, using the new 125% guidelines, which will just about cover our loan. They have been very easy to deal with.
This article and its comments outline most of the issues. But, the 125% LTV is still not the solution.
We're wasting time. We really need to stop subsidizing real estate, kill off all of these bailouts, and let the real estate market start functioning again. Prices are coming back down to reality, but they're still too high relative to incomes in many parts of the country. The median house price needs to be 3 – 4x the median household income to be affordable. It's getting there.
Even in good times, we have foreclosure rates of about 1% per year. If it reaches 2 or 3% per year from now until the 2012 – 2016 timeframe, so be it; This will allow the borrowers to 'renegotiate' their loans with their lenders (whoever bought the mortgage junk bonds). This 'renegotiation' is a necessary event, and it can be accomplished through loan modification (lower the rate, no refinancing), refinancing, walkaway, repossession, foreclosure, bankruptcy, and the list goes on. Americans who took on too much debt must shed it. Then, growth will begin once again.
And, let's hope that people are much more careful in the next few years. If they resume overbidding for real estate, they'll be back in this mess again … and we may be in there with them to some degree.
If you really want to know just how poorly any of these "help" programs or refinancing "fixes" are working, just go to your local bank and ask then what they can do to help or fix your "underwater" problems. I can 100% guarantee that the answer you get, if any, will not resemble anything the Obama flag waivers and administration/staff spin doctors are telling us are their programs which are WORKING. The next wave of significant mortgage forclosures is just around the corner.
This housing crisis was caused by people overpaying for houses, period. Whether they did so with a prime 30 year fixed or they used a liar loan doesn't matter. The fact is that housing prices were a bubble and all bubbles correct. Now the people who paid too much are trying to get everyone else to pay for their mistakes. I've got my own American Dream to fund, and I can't afford to bail them out too.
I don't get it. All you people want a hand out when it was your bad investment decision to buy a house with an inflated value. No one was complaining when they signed whatever needed to be signed to get the home in the first place. Act first, think later is the mentality of the American consumer. The whole program is a joke. Where's the accountability by homeowner's?
Ummm…yeah, this update actually just caused at least 1 more foreclosure in the next year or so. 
Until the administration realizes they need to just mandate a X-month time period where the banks do an appraisal and all mortgages currently above the appraised value have the balance lowered to it (smaller payments/reset of terms/shorter loan/etc can be worked out), the economy is hosed.
House underwater = homeowner less likely to keep paying.
House underwater = homeowner less likely to do maintenance/upgrades
House underwater = homeowner more likely to move
Less likely to keep paying = even larger loss for greedy banks.
Less likely to do maint/upgrades = less/nothing spent @ Home Depot/lawn & garden/etc
More likely to move = less spent on consumer products/big ticket items that will have to be moved.
More underwater folks = less house purchasing = less transactions = less fees/revenues to other companies for underwriting, appraisals, mortgage issuers, etc.
Essentially, the economy is at a standstill until prices "magically" inflate to where people can move (not going to happen), or banks/gov't find a way to get the balances reduced or let people walk away penalty-free. 
"They don’t bail you out of credit card debt or other debts that you in, then why would they do that for seconds?
Not yet, they don't but it is probably coming along w/ bailouts for student loans and credit cards. We are not even close to seeing the end yet.
All this talk about bailing-out the irresponsible among us is just that—irresponsible! After all, if you bought your home after about 2003, it really doesn’t matter too much how fiscally responsible your down-payment might have been. In many parts of the country, it is likely that your house has now lost 40% of its worth, leaving that hefty, 20% down-payment of yours exactly 50% short of providing you with the first $1.00 of equity. That might be alright for a time, too, unless you want to send a kid to college, or your health takes a dump, or a failing economy takes your good job and leaves you to forage about in strange lands searching for the two or three others that it will likely take to replace it. Then, put your home on the market, the one right next door to that irresponsible guy, and see what does—or does not—happen.
By way of reply to Sibyl:
This program is only marginally aimed at helping out homeowners. It is really about continuing bailing out the banks. If everyone defaults, not only will property values tank but even banks who avoided risky loans and property owners who bought (albeit at inflated property values)will be in bad shape.
I have a friend here in Danville who did everything the right way after her divorce–put down 25% on a house in a good area, and she is STILL underwater and can't refinance because she is underwater or close to it.
The banks, the loan agents, and the real estate brokers are all the ones who were happy to see real estate prices go through the roof–I am certainly happy to see them all pay part of the price for the folly of no-down payment loans.
Anyway, Sibyl, don't worry. Real estate prices are definitely on their way down and will be for years.People are losing their jobs right and left and the jobs are going to China becuase we are not competitive and greedy compnaies are trying to make big bucks by taking stuff that was invented in the US. maufacted cheaply in China and then expecting Americans to pay for them…
Keep your job, save your money, live happily but modestly, and your time will come!
This does not help the people who do not have Fannie/Freddie loans. I have a regular loan and would like to refinance 100% of my current mortgage but cannot because it is not a government backed loan but I am sure I will be paying for everyone else's refinances for years to come.
As a loan officer, I am happy about the LTV increase. I felt so bad when I had to tell borrowers that they didn't fit the parameters because they were maybe 1 or 2% above 105% LTV. I think the automatic subordination approval of seconds is a good idea. If you have a second mortgage or line of credit… then that's your problem, not the United States Government. You made a personal choice to borrow against the value of the home. So why should the Government bail you out of that? They don't bail you out of credit card debt or other debts that you in, then why would they do that for seconds?
And what good does it do for us in California when the mortgage limit is only $225,000? Anyone who got a mortgage in the last 4 years here had more than that for a balance.
This still does not addresss the fact that the house is still underwater. They need to get the lenders and apprasiers that approved these loans to modify loan to market value. The lenders and appraiser had a sweet deal going for a while and made a ton of money off these homeowners. I remember whole condo developments where one apprasier and lender got most of the deals ans worked together. Marking up values by the hour.
Yes let me refi my house at 125% that has lost 120K in equity!! So I can pay the bank, investors, etc. interest for the next 10 years so they can still afford their mansions, maids, boats, and expensive cars. Not to mention that they created these securities, sold these toxic assests to the public as AA rated and pocketed billions. All while my house breaks even in a few years (10 years 500K in interest lost and paid to the bank.) How about this you take my house back and I'll rent and I'll buy a house in 4 years at a market bottom for cash start building equity and not owe you the bank anything
Change oh yea, that's all u'll be left with. No leadership, no reading the bills, no transparency at all.
Actually, you are factually incorrect -the incentive is more than you are stating.
A homeowner will be entitled to the lower rate which, as you state, comes with a lower term but, if they are from 5% to 25% 'underwater' they will be given that rate at 1/2 pt less in cost (translates into 1/8 to 1/4 less in rate).
It doesn't matter what the result is. What really matters is that Obama and his team can stand up and say they offered to help struggling homeowners. I don't think this has been a very results driven administration so far.
I have worked in the mortgage industry for 15 years practicing in responsible lending and this home affordable is a joke, only allowing a homeowner to refinance their first mortgage?? and leaving those with subordinate financing which will become more problematic in the future as most of this stuff is tied to prime, hang in the wind in this situation. I say let the idiots who took these pay option ARMS in FL, CA and AZ so they could "afford" real estate that would have otherwise been out of reach drown in it. Whoever is advising this administration on the best fix for this problem is not using a common sense approach, if the tax payers are going to have to foot the bill it needs to at the very least have an impact
I'll start the rush of "What are they thinking?!?!" comments.
I don't like spending my future to pay for the Government borrowing money to then lend to fools who bought too much house.
In fact, I would like to buy a house myself. But since I am a laborer, housing prices are still above my reach.
So what the government is doing is borrowing money in my name (And will imprison me if I don't pay the bill) to give to some other person because they were foolish. And doing this FOR THE PURPOSE of holding still inflated housing prices above my reach.
ooooh. I'm a happy camper today.
I think this is a great move. 25 year fixed rate mortgages traditionally have the exact same interest rate as 30 year fixed rate loans. At least this has been the case over the last eleven years that I have worked in the mortgage industry. By offering discounted rates for the 25 year term they are essentially forcing the public to make the better long term financial decision. Take a $150,000.00 loan that was opened 2.5 years ago (30 months) at 6.25%. Aproximate monthly interest is $781.00. By starting over at 30 years you are losing the time and money you have already paid into the loan to the tune of roughly $23,400.00. Kudos to FHFA for taking these steps.
My sister in California met requirements for the new "Oboma" mortgage to prevent forecloser, BUT the banks out there refused her a mortgage. Anyway around those banks??!!