Its been a little over a week since the FEDS announced the monetary settlement with 5 major banks and the administration's plan for refinancing. As the smoke and mirrors aspect o the programs settle the details are beginning to emerge. And as with all things proposed by the government the devil is in those details. In this case there are lots of pesky details. Let's start with a few of them ...
Bank Settlement:
The settlement only covers about 10% of mortgages nationwide. If you didn't obtain your mortgage from Ally/GMAC, Bank of America, Wells Fargo, JP Morgan/Chase or Citigroup, you may be out of luck. The FEDS may add more banks to the list but the operative word is may.
However the biggest issue is that the bank had to portfolio or keep your loan in-house for you to qualify. If your loan was sold to Fannie Mae or Freddie Mac (over half of all mortgages were packaged to be sold to Fannie and Freddie) then you are not covered.
If you do manage to qualify for help and are underwater then you might be a candidate for a principal reduction of the mortgage... but again think small not large If you have lost your home to foreclosure again think small not large.. as the amount you may receive from the bank is $1500-$2000.
Banks are being offered incentives for moving quickly but as of now they have 3 years to distribute funds. Also the settlement still has to be submitted to a Federal Judge for formal approval.
The Refinance Plan:
The first thing to remember is that this is a plan not a done deal... everything that follows is what the government is proposing.. Some of the items can be done without congressional approval but not all. To qualify for this plan your home loan must be owned by Fannie Mae or Freddie Mac or be an FHA(Federal Housing Administration) loan....
The plan calls for folks with underwater mortgages to be able to refinance at 4% fixed rates. For FHA borrowers the plan is that you won't have to qualify using standard guidelines. If you haven't missed payment in 6 months you qualify even if you don't have an equity in the property. The government plans to pay for all this by charging banks more fees which of course won't be passed on to borrowers... right!
Most borrowers in the South Bay-Beach Cities aren't going to qualify for the refinance plans because until 2009 the majority of loans issued in our area were too large to qualify for either conventional financing or FHA financing. Conventional loans didn't rise to $729,750 until March 2008 and FHA was not a viable mortgage resource until after that time as the loan amounts were so low.
Many homeowners who have been making their payments every month who would like to refinance to a fixed rate loan from an adjustable won't have that option because the rules are so selective. They may have gotten a jumbo loan when they bought and with the declines in value they just don't have enough equity to obtain a new loan. Unless there loans are owned by Fannie or Freddie or FHA there isn't much chance that they can refinance.
It seems to me that if you are going to talk about mortgage relief than it should be something offered to everyone not just a few folks. The bottom line is that whatever is finally decided we all know it is the tax payer who will foot the bill.
