By JULIE HIRSCHFELD DAVIS, Associated Press Writer
WASHINGTON - Homeowners staggering under mounting mortgage debt and facing foreclosure could get cheaper, government-backed loans under Democrats' housing rescue plan.
But first, lenders would have to agree to wipe out part of their debt. And the borrowers would have to show they could afford the new mortgage. They also would have to agree to share any future profits on the home with the government.
The plan would be a massive expansion of the Federal Housing Administration, the Depression-era mortgage insurer. FHA would take on $300 billion in new loans for as many as 1 million distressed homeowners, most of whom otherwise wouldn't qualify for a government-backed loan.
Taxpayer dollars would be at risk should borrowers default on their new mortgages. The FHA, however, would have some non-taxpayer money to cover losses. The agency would collect a 3 percent fee on the refinanced loans, as well as annual 1.5-percent premiums, and share a portion of borrowers' future proceeds if the property is refinanced again in the future or sold.
The measure by Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, is scheduled for a committee vote this week and is expected to move through the House in early May. A similar bill is taking shape in the Senate. The Bush administration is backing the same concept, although on a much smaller scale.
By relaxing FHA standards, Frank's bill would allow a whole new swath of homeowners who are currently too financially strapped to qualify for a government-insured loan to do so. That includes people who are badly behind on their mortgage payments, have poor credit and hefty debt, and those who owe more than their homes are worth.
It's unclear how many would qualify, however, even under far looser FHA standards. Also an open question: whether mortgage servicers would agree to participate in the voluntary program.
Today, a homeowner who has fallen behind on the mortgage might get a chance to work with his loan officer to lower the payments to an affordable amount. A homeowner who couldn't keep up would likely face foreclosure.
Frank's two-year program is designed to offer another option that would let borrowers keep their homes and give mortgage holders a chance to get a heftier chunk of what they're owed than they would with foreclosure. Typically, mortgage holders lose up to 40 percent on foreclosures.
To take part, a loan officer could contact an FHA-approved lender, who would calculate the terms of an affordable mortgage the borrower could be expected to repay. If the existing mortgage holder agreed to take a substantial loss — he would get no more than 85 percent of the home's value and pay FHA fees and closing costs — the FHA lender would pay off the loan.
The new, fixed-rate loan would be for no more than 90 percent of the home's value.
The idea behind the plan is that mortgage holders could do better accepting a loss now in exchange for getting a delinquent borrower off their hands than they would if they went to foreclosure. In some cases, however, a homeowner will be so financially strapped that the lender would stand to lose too much from the deal and would opt to foreclose instead. Critics say mortgage holders would have little incentive to participate in any case, because they would have no chance of recovering a substantial chunk of what they're owed. To qualify, borrowers would have to be devoting at least 35 percent of their monthly pretax income to a mortgage payment on loans originated before Jan. 1, 2008.
With the new loan, FHA could allow a borrower's total monthly debt load — including student loan, credit card and car payments — to reach as high as 55 percent of monthly net income if he made at least six months of timely mortgage payments on the original mortgage. That's a substantially looser standard than the agency's current 43 percent limit. Homeowners also would have to share with the FHA any profit or gain in any future refinancing or from selling their homes. FHA would get at least 3 percent of the original loan amount when the borrower sold or refinanced. To discourage borrowers from using the program to quickly "flip" their house for a profit, FHA would reap all of the proceeds if the sale or refinance was within a year. That percentage declines 20 percent annually.
The plan is aimed at homeowners hit by the double whammy of the credit crunch and housing downturn. Many of them have subprime loans that are resetting at much higher rates, and can't sell or qualify for a new loan because — due to slumping housing prices — they owe more than their homes are worth. That is known as being "underwater."
"It won't help everybody, but would help some people who are stuck. They can't sell or refinance because they're under water. They've gone to their servicer and cannot get a modification of their loan. Now the only option is to lose the house to foreclosure," said Eric Stein of the Center for Responsible Lending, a nonpartisan research and consumer advocacy group.
The program would only be open to owner-occupied properties; not second homes or investment properties.
Architects of the plan believe mortgage holders would likely give their borrowers broad guidelines for who might qualify for the new program, rather than decide on a loan-by-loan basis.
Key elements of the program will be decided by a new oversight board comprised of officials from the Federal Reserve and the departments of Treasury and Housing and Urban Development. One major task of the board will be to figure out how to compensate those who hold secondary claims on a home, who would walk away with no more than 1 percent of the home's value
Tuesday, April 22, 2008
Struggling homeowners could get new government-backed loans
Wednesday, February 27, 2008
Will The Feds Get Policy Toward Mortgage Lending Right?
The simple answer is - who knows? It's a pretty complex and derrivative answer to come up it.
I've gotten A LOT of questions over the last 7-14 days asking me what is happening to cause mortgage interest rates to change so dramatically from where we were on 1/23/08. So, I put on my best John Maynard Keynes (famed 20th century British Economist) thinking cap and would like to share the following ideas with you...with a little bit of Rich Hayden flavor!
In short, things are pretty whacked. At the moment - based on where we've moved to, I don't see the likliehood of a return to the mid-5's for conforming 30 year fixed rate mortgage for a while (possibly late spring).
The following chart shows you what has transpired over the last 3 months back into late November. We've had 2 Fed rate cuts. The biggest key about those rate cuts is that the actually cause an INCREASE in long-term rates (30 year fixed) 60%-70% of the time. Why? Because that rate-cut has an INFLATIONARY impact on the broader economy by making it cheaper to borrow money. 
When people and companies can borrow more cheaply, the producers of the goods/services that those entities buy are inclined to raise the prices they charge. This is inflation. Gas, food, heat, electricity - all are in an inflationary mode right now (unless you're living under some enormous rock with your own economy). So, when inflation is an issue in the economy, long-term bonds (30 year mortgages) tend to get less "expensive" and have a higher yield (interest rate) for the purchasers of those bonds. Why? Because when the Fed Funds rate is so low, the "long-term money" has to compete for investors. To try to lure more investors to them, the bond issuers (Fannie Mae/Freddie Mac) must INCREASE the yield to make the investment profitable and attractive to the investor. We've already established that the yeild is the equivalent of the interest rate. So, you can see how this works. Fed cut = mortgage rate increase = Inflation. Inflation is a bond instruments WORST enemy. It will almost always drive the yield (interest rate) on that bond HIGHER - which, ultimately causes inflation to subside. WHAT? Yes, when things get too expensive (mortgages, cars, food, etc.) people buy less. Producers eventually have to lower their prices (see bonds above) to attract buyers - then the economy expands.
So, what you're seeing is that the Fed's activity of lowering the "Fed Funds Rate" - which is the shortest term rate on the market (the "term" on Fed Funds is 1 day, whereas your mortgage is 30 years), is having the negative impact of actually CAUSING greater inflationary pressures. Okay, that's actually pretty simple to figure out. But, we're in a bit of a Twilight Zone period economically that we haven't really seen since the mid-70's. You won't see this term in the broader media for a little bit, but, it will come about. Afterall, there is still wide-spread belief that we're not quite in a recession. Well, make no mistake about it, we're in a recession...and have been for nearly 2 months. Anyway, we have entered into a period of "Stagflation" in the economy.
This means the broader economy is suffering from inflation and stagnant economic growth (recession) at the same time. So, we combined the words in the early 70's to create "stagflation". Why this is imporant relative to our ideas about home mortgage finance and home selling is because we've got a real quandry on our hands in trying to forecast what's going to come about. What we have now vs. the 70's (oil embargo and manufacturing slow-down) is a declining housing market. We did not have that factor @ that time - at least not to the extent that we do today. So, we're into uncharted territory from an economic policy perspective and lawmakers are trying to "fix" housing - which means they are likely to hurt it as a result as most lawmakers are not economists. I don't mean that to submarine the efforts of our elected officials. Rather, it's pretty well accepted that markets are self-correcting and government intervention "typically" doesn't create economic sollitude. This is not to suggest that I am opposed to intervention.
That said, where do I think this is going? I EXPECT that long-term rates (30 year fixed) will see a bit of a rally in the spring once the most recent "fiscal stimulus package" signed by the President 2 weeks ago actually goes into effect. At that point, we should have better rates to work with. The question at that point will be what type of underwriting guideline changes will be in effect.
I hope this makes sense. It's a bit of a ramble. But, I think it's very important for EVERYONE to understand what the factors are behind this stuff so that you know it's not just some kind of "puff-here's your rate" type of idea-set. My clients are wondering if they should refinance or buy, when should they buy, how much should they buy and what they'll need to have to do it with. The answer to the question is evolving and will continue to be a fluid answer.
This information should rarely be looked upon as negative or glum. Rather, it's an analysis of data. Within that data is the power to positively impact outcomes. Historically, the greatest financial triumphs come out of the greatest failures. The key, then, is to understand the underpinnings of the system so that you can use its NEW growth to your advantage!
If you're trying to figure out what this all means to you and your financial profile - then give me a call. We will work through it together and you can get it going the way it should be so you can be an example, not a statistic.
Your Friend,
Rich Hayden
Financial Coach
rahaydenjr@yahoo.com
703.773.8409 - p
P.S.: Have a friend who could be helped by this info? Why not forward this on to them? That's what friends are fore!
P.P.S.: Starting to plan for college? Ask me how I can help.
P.P.P.S.: Ask me about the Debt Melt Down (TM) Plan and how you could become 100% debt free...including your mortgage...within 9-11 years!
P.P.P.P.S.: If this has reached you at an undesirable address, please respond with "Update My Email To: rahaydenjr@yahoo.com and I will update your email accordingly.
P.P.P.P.P.S.: Want to receive a copy of my most recent newsletter in PDF format? Respond with "NEWSLETTER" in the subject line and I will forward it to you today!
Tuesday, February 19, 2008
Time - Friend or Foe?
Financial Coach
Monday, February 11, 2008
$100,000,000.00
I've come to the conclusion that I am now worth MORE than $100,000,000.00 as of this morning. I was looking at my portfolio and had been very frustrated because I have been working on breaking through the $100,000,000.00 level for a long time and I just couldn't get over the hump. What triggered it?
I'll gladly tell you - my latest UK Lottery notice in my email inbox! I finally got THE ONE notice that pushed me over the top. I've now either WON millions in world-wide lotteries, or been GRANTED millions from various fallen African government ministers so that I now have more than $100,000,000.00 in BOGUS wealth. Man, I gotta tell you, I was pumped!
What's wrong with this story?!
WISHES are great. They really are. We all need to wish for things. We need to dream. We need to think big. We have to look at the world through the unfiltered eyes of a child to be able to visualize the future we want to create. Stick with me here, because this is the most important thing. See, we have to go beyond the WISH to start to define things by first turning them into GOALS. Then, we need to turn that GOAL into reality through PLANNING.
In the 20th Century, Winston Churchill & Dwight D. Eisenhower both famously told us that Plans, in and of themselves, are not important. But, the ACT of PLANNING is everything. It is essential.
You see, this is where it all comes together. I don't care if you make $3.65 per hour working @ Wendy's, or if you make $365,000.00 in base salary as the CEO of your own company. If you don't begin PLANNING what will happen with that money - both income earners will end up at the EXACT same place...looking back on opportunity and fortunes missed. It really doesn't matter if a person is currently flush with cash, living paycheck to paycheck or bankrupt. If they don't have specific goals and a planning process to help them achieve those goals - they'll never reach any kind of success financially.
One part of your plan is understanding your DEBT. Knowing how to lever it, how to use it...and most importantly - HOW TO GET RID OF IT!!! I have THREE distinct ways that I help people just like you eliminate their DEBT in time frames that they find hard to believe. I use methods that the big banks use. I use their own tools against them to make them FINANCIALLY FREE.
Here's the great thing. FINANCIAL FREEDOM is well within EVERYONE's reach during their lifetime. But, they have to look back on the steps I've laid out in this blog to get beyond the WISH phase. Get in into the GOALS phase...then get their butt PLANNING now.
There are now less than three week until I turn 40. You can bet that I've got some GOALS set up for the coming years. You can also bet that I am PLANNING every day to turn my WISHES into REALITY via the achievement of my GOALS. What about you? Are you ready to get going? Are you finally fed up with being handed YOUR reality rather than creating if for yourself?
If you are, then give me a call @ 703.773.8409 to get started building your FINANCIAL FREEDOM today. Or, for a copy of my FREE REPORT: "How To Literally Melt Down Your Debt, And Discover What the Banks and Big Credit Card Companies DON'T Want You To Know" - call 1-888-267-0280 x 8600 and I'll get it out to you in the mail.
Your Friend,
Rich Hayden
Financial Coach
rahaydenjr@yahoo.com
703.773.8409 - p
P.S.: Have a friend who could be helped by this info? Why not forward this on to them? That's what friends are fore!
P.P.S.: Starting to plan for college? Ask me how I can help.
P.P.P.S.: Ask me about the Debt Melt Down (TM) Plan and how you could become 100% debt free...including your mortgage...within 8-10 years!
P.P.P.P.S.: If this has reached you at an undesirable address, please respond with "Update My Email To: rahaydenjr@yahoo.com and I will update your email accordingly.
P.P.P.P.P.S.: Want to receive a copy of my most recent newsletter in PDF format? Respond with "NEWSLETTER" in the subject line and I will forward it to you today!
Thursday, February 07, 2008
The Year of The Rat
The Chinese Year of the Rat should be a good one for those who are committed to getting out of debt.
