Here are the things that you need to know.
Obama’s Homeowner Affordability and Stability Plan is on the way of turning the ailing market into a recuperating property industry. Here are some points that you need to know about it.
Loan balances will not be trimmed down which is a major disappointment for some analysts. However, subprime loan holders will find it easier to refinance their mortgages to 15- or 30-year fixed rates and benefit from an interest that’s staying close to 5 percent.
Even those who haven’t defaulted in their monthly payments are still covered by the program. Borrowers whose payments are less than 31 percent of their income can have their refinancing valued more than the current value of their property under government-backed loans. This is an answer to the huge drop in home values.
Mortgage providers will receive a credit worth $1,000 for each modified loan. This will be implemented to reduce the costs of hiring additional manpower, increased load of paperwork, etc. Many lenders have previously resorted to foreclosure instead of loan modification because the latter can be completed in a shorter amount of time with more profits. If the borrower stays current, lenders will receive additional $1,000 a year for 3 years.
Borrowers with new loans will receive up to $1,000 annually for 5 consecutive years. To qualify, they must stay current on the new loan.
The toxic loans that will be taken from the lenders will be impossible to sell in the market. We’re not sure if it is because of the lack of information regarding the securitized mortgages that have gone on to be resold again and again or because the real value of each illiquid loan is difficult to calculate. But one thing’s certain: the toxicity will be contained.
No one can get away with a different set of mortgage modification guidelines. The Treasury Department is mandating a standardized rule for all financial companies that will take part of the rescue plan. That means uniform profits for participating lenders – no more, no less.
Obama’s assurance during his campaign that bankruptcy courts will be given the go-signal to modify loan terms is finally approved. Before, a judge isn’t allowed by the law to lower a delinquent borrower’s balance. This time, troubled homeowners will be protected against lenders who cannot stand to lose their money.
And as expected, investment and second homes will not be covered by the program. Had they created a special provision for these types of ownership, we’d never think twice about seeing the rescue fund balloon to $300 billion dollars.