Feb 03, 2012
The Obama refinance plan
03 Feb 2012
Posted by Andrew Kantor
Let’s look at President Obama’s mortgage refinance plan. Its goals are to allow a lot more home owners to refinance at today’s lower rates, and thus pump more money into local economies. It will also reduce foreclosures, which might help bolster property values — not to mention allowing people to stay in their homes.
Essentially, the plan the President outlined will allow any borrower, not just those with Fannie or Freddie loans, to refinance through the FHA if they meet the qualifications.
It’s estimated to save a typical borrower $3,000 a year — three grand being pumped back into local economies.
So, what’s a guy gotta do to qualify?
1. It’s only available to responsible borrowers — those who are current on their mortgages for at least six months, haven’t missed a payment in a year, and have reasonable credit (a FICO score of at least 580).
2. The mortgage they’re looking to refinance has to be within the FHA’s conforming loan limits.
3. If borrowers owe more than 140 percent of the value of their home, the lender has to agree to reduce the loan balance. The White House also said Tuesday it wants to help banks that want to refinance those deep-underwater borrowers.
If a borrower can verify his employment, he won’t have to file the whole magillah of paperwork. And appraisals won’t be necessary.
One independent estimate found that about 3.5 million people would qualify to refinance.
Risks and rewards
In a way, President Obama is saying that if banks won’t help these responsible homeowners, the federal government will — and it will also reap the rewards. Remember, FHA doesn’t cost taxpayers money, it generates profit. More so if it can expand its roll of responsible ‘customers’.
Further, as insurance against some of those borrowers not being as qualified as they seem, banks will be charged fees based on “their size and riskiness of their activities” — in other words, the more sloppy a lender’s underwriting, the higher that fee.
Of course, that would seem to leave lenders with the rest: the borrowers who don’t take advantage of the lower rates for whatever reason, and those who are behind on payments or have too low a credit score to qualify.
And the rest
Also part of the Obama plan is prohibiting banks from dual-tracking: working to modify a home owner’s mortgage on one hand, while beginning foreclosure procedures on the other — speaking with a forked tongue, as it were. Before a lender can foreclose, it will have to show it took all reasonable steps to modify a borrower’s mortgage.
Finally the plan would start the process of having Fannie Mae make foreclosures available to investors in bulk, provided those investors then make the homes available as rentals. (Between them, Fannie, Freddie, and FHA own about 25,000 foreclosed properties.) But the details of how that would work are still up in the air.