Why the new housing bill is (almost) useless.

As you know the Senate has just recently approved the new Housing Bill designed to help American Homeowners keep their homes.  For those of you that read the verbage for the bill but did not understand it this is the breakdown:

• You must have obtained the mortgage between Jan 2005 – June 2007.
• More than 40% of total income must be spent towards housing payments.

Ideally if you meet these two conditions then you’ll be able to write down the value of your mortgage to 90% of the value of your property and go with a more reasonable rate since you’ll going into an FHA-backed mortgage.  Everything sounds good doesn’t it?  Not really, not once you read the rest of the verbage and go over the costs.  First off not only will you be paying mortgage insurance with the new mortgage you’ll also have to do profit sharing with FHA.  In the 1st year you’ll have to give 100% of all profits to FHA after which it will be 90% for the 2nd year and will continually drop 10% every year after before bottoming out at 50%.  What that means is 30 years from now if you own a 1.5 million dollar property you will still owe 50% of your equity to FHA.

Some of you may be thinking that this is the only alternative option available to you short of foreclosure however in many cases you can do a loan modified by negotiating directly with our bank instead of going through the FHA process.

For those of you that are unaware of what a Loan Modification is, a Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.  Or, to simplify, it means that you can have your mortgage reworked to give you a more affordable payment.  Generally how the loan modification process works is the Loan Modification company (LM) will contact the current lender on a homeowner’s house and request that they redo the mortgage by either dropping the balance or the interest rate (or both) to make it more affordable for the homeowner.  This is not always successful because these days every Tom, Dick, and Harry will call himself a Loan Modification Company and try to negotiate for you.  Keep in mind the reps that the LM will be dealing with are experienced and receive thousands of call everyday from someone trying to renegotiate their mortgage.  It is not uncommon for a homeowner to hire ABC Loan Modification ‘r us (who is actually ABC ex-Mortgage brokers ‘r us) to handle a loan modification, who will in turn try to negotiate for weeks going nowhere.  The process will drag out for months, nothing will happen, and the homeowner will go into foreclosure.  In any case the LM will walk away with the “upfront consulting fee” or “commitment fee” (ranging from $1,500 up to 2% of the loan balance).

The best option would be to do an attorney-based loan modification program.  How this works is an attorney will audit your loan that you have with the lender.  If any errors are found on your loan documents the attorneys will build a case for you and sue the lender on your behalf to rescind the loan.  If the loan cannot be rescinded they can renegotiate your mortgage down 90% of property value @ 6% fixed.  This will end up being the best option for homeowners.  Let’s face it if you are deciding whether to use the provisions in the housing bill or the loan modification program, that means that you’re planning on being in the house for the long haul.  I saw a special on CNN where and there are more and more attorney-based loan modification companies in Florida and California (where foreclosures are at the highest rate) popping up.  This trend has yet to affect the foreclosure rates but I believe in a year or two you’ll see an effect.  

For those of you interested in learning more about attorney-based loan modifications, you can either google it or search on the cnn website.  One company that was highly recommended in the media was Saving the American Dream (800-515-9603)

How the new Housing bill affects the American homeowner

After reading this don’t forget to read my blog “Why the housing bill is (almost) Useless”  

2008

The House is expected on Wednesday to pass a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac. If the bill is then passed by the Senate and signed by President Bush, who today withdrew his threat to veto the legislation, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new, low-cost fixed-rate loans insured by the FHA, Federal Housing Administration.

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program, but the bill allows for as many as one or two million borrowers to participate.

Who’s eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must spending at least 40% of their gross monthly income on all household debt to be eligible for the program They can be up-to-date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage – and attest that they are not deliberately defaulting just to obtain lower payments. Before a homeowner can get an FHA-backed mortgage they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity

loan for at least five years, unless it’s to pay for necessary upkeep on the home. To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home’s appraised value at the time.

How can I apply?

Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.

How does the refinancing process work?

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial

loss for the lender. But lenders won’t sign off on a workout unless they think that they’ll lose less money on that than they would by allowing a home to go through the costly foreclosure process. Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home’s current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

Based on that new appraised home value, the FHA lender determines how much the original lender has to reduce the original mortgage by, so that it will reflect 90% of the home’s market value. If the original lender agrees to the write down, the new lender buys the old loan and takes over the reworked mortgage. As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally it pays the FHA an up-front premium equal to 3% of the mortgage principal.

What does it cost?

There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate. However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually. Borrowers also agree to share any profits from future home price appreciation with the FHA. To do that, they’ll pay a “3% exit fee” of the mortgage principal to the FHA when they resell or

refinance. Plus, they’ll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs. After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.

What will I save?

Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even factoring in the FHA fees. In areas that have sustained huge price drops, such as Sacramento, where prices have fallen about 30% over the past year, some loans might be reduced by more than 40%.

Additionally, the FHA loans carry reasonable interest rates which are fixed for the life of the loan, as opposed to a subprime adjustable rate mortgage that can jump higher every six months.

By Les Christine, CNN Money.com, Staff Writer

http://www.fha.com/application_ml.cfm?PPCID=102

The Best Answers to your Best Questions on debt settlement

Q. How does debt negotiation affect my credit rating?

A. Debt negotiation will have a negative impact on your credit.  How much your credit declines dependson your original circumstances when enrolling in the program.  When the settlement is complete you should receive a settlement document that you will then send to the credit bureaus showing that is it “settled”, “paid”, or “settled and paid less than the full amount”.  Unfortunately your credit will get worse before it gets better because as your accounts are being negotiated your score will get a few dings.  The good news is that by the time you finish the program you should be back on track!

Q. Do all of my debts qualify for the program?

A.  It will not work with any secured loans.  What is a secured loan? Well that’s any loan that is tied to any sort of collateral such as a car, house, or that expensive RV you just bought.  The other type of debt that will not qualify for debt settlment is government backed student loans or income taxes.

Q. Why can’t I just negotiate my debts on my own?

A.  Negotiating your own debts CAN be done.  I’ve done it several times in the past many years ago and I was able to get the balances down on my credit cards.  The one problem is that the Creditoirs are well trained in dealing with thousands of people who call in everyday asking the same thing that you’re asking for.  They’ll draw out the negotiation process or try to play hardball with you.  When I negotiated my on debts it was a VERY long drawn out process and left me feeling drained when it was all over. 

Thats all I have for now but if you guys have anymore questions feel free to e-mail me @ i.closem@gmail.com. 

Links:

Blog Catalog
Blog Directory

Dealing with Debt

This blog is intended for readers interested in getting out of debt.  With the amount of Americans drowning in debt on the rise I have started this blog to answer many questions for those living in a world of uncertainty.