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Election Year Help For Underwater Homeowners?

Election year promisesPresidential election years are always interesting as the vote sway machine kicks into high gear.

During President Obama’s State of the Union address on Tuesday evening administration, he briefly mentioned a new plan to help underwater homeowners whose loans are NOT owned by Fannie Mae or Freddie Mac and therefore do not qualify for the new HARP 2.0 refinance program.

“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust.”

Supposedly this is going to happen in the next couple of weeks.

I do not have any details at this point but it sounds like the President may be suggesting that FHA be used to refinance homeowners under a streamline type of program to reduce rates for responsible, upside down homeowners that have stayed current on their mortgage payments.

I’m not super excited about the whole “small fee on the largest financial institutions” part.  Last time he levied a small fee on banks, with the passing of H.R. 3756, we saw an immediate jump in interest rates independent of normal market fluctuations.  That’s right….the banks passed the fee straight on through to the consumer.

Any proposal the President comes up with still has to make it through Congress.

There are two things we know about Presidential election years, “say anything to get elected” rhetoric flows like Niagara, and Congress stonewalls making any important decisions as a shift in power is anticipated by both parties and nobody wants to go out on a limb to support something the other party supports for fear of ticking off their constituents.

We’ll see.  My hopes are not high but I am optimistic.

What do you think about this proposal?  Is a lower interest rate enough to make you feel better about owing more than your home is worth?  Is this enough to help the economy recover?

I would love to hear your opinion below.

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9 Responses to Election Year Help For Underwater Homeowners?

  1. Pat Connolly January 26, 2012 at 7:25 pm #

    Refinancing underwater jumbos:
    1. Allow access to retirement fund without penalty and w delayed tax consequences if used for redo.
    2. Allow/require bundling of refinanced underwater home loans. That portion constituting assessed value gets refinanced at today’s rates. That portion above assessed value refinanced through negotiation to include personal loan rates or refi rates with a recourse provision for the bank. In the ideal world I’d like to see a requirement that that portion above assessed value is treated 2 ways. 50% refit’d at today’s refi rates and 50% treated as recourse loan. I.e. let the banks assume some of the risk because we bailed them out while giving them recourse to recoup a portion.
    3. Require banks and municipalities to set up info centers for strategic foreclosures I.e. begin to give more respectability to the same kind of economic decisions that the frickin banks make every day.
    Thoughts ?

    • Legacy Content January 26, 2012 at 8:31 pm #

      Great points here! The first modification program, HAMP, did something similar to what you’re proposing I believe. Homeowners that qualified would get a seriously below market interest rate of about 2% which increased incrementally for 5 years until it becomes permanent in the 5% range.

      The loan amount under this program was determined by an automated valuation model and payments were based off of this value. The “balance” of the loan was treated as a forbearance, moved to the end of the 30 year term as a balloon payment.

      The challenge with that program was that most homeowners could not meet the qualification requirements, and an incredibly large number of those that were allowed to begin the trial modification process ended up defaulting…and herein lies a challenge that’s not being addressed.

      Most folks deal with crisis in a very linear fashion. The crisis closest to the heart gets all of the attention and effort…until it is resolved – ie..loan modification. Soon after the fear of losing the home has subsided, the reality that the homeowner owes far more than the home is worth sinks in and the exit strategy begins.

      I completely agree that strategic foreclosure needs to be addressed. I’ve actually been thinking about this quite a bit lately – you’ll see articles about this subject very shortly.

      Pat, thank you so much for your thoughtful points – I think YOU should run for President!

  2. victor January 26, 2012 at 7:11 pm #

    With so many homes on the market, sitting empty, why not give those who have gone through a foreclosure due to job loss, or other situations, etc., but who have now recovered and have saved a downpayment, get a home loan. If they can put a downpayment into a home and afford a home loan now, let’s get some of these homes sold and save the neighborhoods!

    • Legacy Content January 26, 2012 at 8:12 pm #

      You’re right on Victor. There has got to be an effort to identify those that suffered economic hardship. Recent changes to fannie mae to allow folks with a down payment to buy in 2 years instead of 7 – that’s a step in the right direction. Although I agree with almost nothing the Government has done to “correct” this situation, I am encouraged by some of the recent changes to HARP, and now this program.

      Thank you for taking the time to share your thoughts Victor.

  3. Jeff January 26, 2012 at 6:35 pm #

    We are one of those that never fit any program and all of our payments have been on time. It has always bothered us that the banks got bailed out,and forclosures became the norm and playground for foreign investors. Yet we stuck it out unlike many that just walked away. It is about time someone did something for those who have stuck it out.

    • Legacy Content January 26, 2012 at 8:03 pm #

      I couldn’t agree more Jeff, thank you for your input

  4. Kevin Evans January 26, 2012 at 6:13 pm #

    This would be perfect. I support the idea completely. The rate is what is really important because the overall cost of the home (bottomline) is more important than the sale figure to the buyer. Buyers are what is needed right now. I would also be open to a plan that required the payment to be the same so the home is paid off sooner. This would increase the number of buyers in a few years and stabalize the entire situation.

    • Legacy Content January 26, 2012 at 8:02 pm #

      Interesting perspective Kevin, thanks for contributing to the conversation

  5. Mary Lunn January 26, 2012 at 6:02 pm #

    Sounds good but time will tell. Definitely a good idea for those of us who are underwater.