2) As the government starts buying (investing) in these bad assets (toxic loans) the government will begin undoubtedly to modify these loans.
This is exactly what they have already begun to do with IndyMac and Washington Mutual as the FDIC took them over and it is exactly what they will do with all the toxic loans that they invest in through the bailout.

 

The goal is not to “bail out” these bad assets and toxic loans but rather to buy and invest in them and then to oversee them and hopefully make money from them. How well they do at this remains to be seen.

 

3) In addition to the Bailout Bill that was signed by Congress yesterday, the Housing Rescue Bill which was signed weeks ago also goes into effect this month allowing for FHA approved “Short Refinances”.

 

In areas where prices have plummeted by as much as 20%, this will mean a substantial loss for the lender.

Warren Buffett makes things so easy to understand and puts things into historical perspective.

De-mystifying the recent events.

To watch this incredible interview either click on the image above or click on the link below. 

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Important new home purchase changes

 

In addition to lenders working with homeowners to modify their current loans, there are incredible deals available for new home purchases.

 

Homeowners vacating an existing primary residence and purchasing a new residence, will not be allowed to use rental income from the property being vacated for qualifying purposes.

 

This new rule is based on an increasing phenomenon termed “Buy and Bail” by Countrywide.

Increasingly, homeowners that are upside down on their current homes are finding it easier to buy a new similar quality home for less than they owe on their current mortgage. So they are deciding to buy a new home at rock bottom prices and just let their old home go.

 

New home buyers will need to qualify for both properties without the aid of rental income.  The only 2 exceptions to this policy are as follows:

 American Mortgage Relief Services Hosts Housing Rescue Seminar Inspiring Hope for Thousands of Struggling Homeowners

 

To learn more go to www.AmericanMortgageReliefServices.org

 

LATEST MORTGAGE RELIEF NEWS

This weekend American Mortgage Relief Services held an emotional and inspiring LOAN MODIFICATION RESULTS SEMINAR coving the following topics:

 

AMERICAN MORTGAGE RELIEF SERVICES, LOAN MODIFICATION, LOSS MITIGATION, FORECLOSURE RESCUE, FORECLOSURE ADVICE, MORTGAGE HELP, HOMEOWNER HELP, HOUSING RESCUE BILL, ATTORNEY ADVICE, LATE PAYMENTS and DAMAGED CREDIT, LATE MORTGAGE, REFINANCING PROBLEMS, DEALING WITH YOUR LENDER, NEGOTIATING WITH MORTGAGE LENDERS, AND CREATING HOPE

This weekend American Mortgage Relief Services hosted a Foreclosure Rescue and Mortgage Relief Seminar.

 

The seminar was not only inspiring to people in the housing and mortgage industries but it was also life changing and offered much needed relief and hope for struggling homeowners.

 

Every single day it is becoming easier to work with the banks on behalf of homeowners seeking to modify their current mortgages and the results we are seeing are truly incredible.

 

Here is a brief overview of the topics covered at the seminar.

If you have any questions at all about your mortgage or your options please you can go to www.AmericanMortgageReliefServices.org for more information.

LATEST MORTGAGE RELIEF NEWS

MORTGAGE RELIEF, FORECLOSURE RESCUE AND LOSS MITIGATION RESULTS SEMINAR

 

As you most likely heard, IndyMac Bank recently was taken over by the FDIC.

At least 25,000 homeowners that had their home loans through IndyMac Bank recently got a gift letter from the Federal Regulators–offering them a new, more affordable mortgage payment.

 

In a recent statement by FDIC Chairman Sheila C. Bair says she advocates “a systematic and streamlined approach to loan modifications to put borrowers into long-term, sustainable mortgages.” The hope, according to FDIC officials is that this program will become an industry model.

Although certainly not streamlined or mainstream loan modifications are generally available to all borrowers in trouble. A loan modification, also known as a modified refinance, is simply a negotiation between a lender and a borrower that yields a restructuring of loan terms without refinancing. This often means a new payment and rate.

Up until recently 80% of homeowners attempting to modify their loans were unsuccessful.

Many borrowers in need of a loan modification were finding it difficult to get started. Calling a lender directly can lead to confusion or loan officers attempting to refinance already troubled mortgages into worse.

Most lenders had not set-up processes to handle a high volume of loan modification request. This lead to requests being bounced around or even lost until it is too late to avoid foreclosure.

Most experts suggests that if you are having trouble making your mortgage payment or facing a significant interest rate or payment adjustment to search out a loan modification expert. And you do not have to be late on your mortgage to receive a loan modification.

 

 

You can also go to www.AmericanMortgageReliefServices.org for more information.

LATEST MORTGAGE RELIEF NEWS

In this installment we will go over the incrdeible events that occured this week.

 

1)    $700 Billion Dollar Bailout

2)    Toxic Loans

3)    The collapse of Washington Mutual

4)    How we got here

5)    How these events will affect you and me

6)    Loan Modification Update

7)    Important New Home Purchase Changes

 

 

$700 Billion Dollar Bailout

 

The historic $700 billion dollar bailout plan’s centerpiece is for the government to buy the toxic, mortgage-based assets of shaky financial institutions in a bid to keep them from going under and setting off a cascade of ruinous events, including wiped-out retirement savings, rising home foreclosures, closed businesses, and lost jobs.

The tentative agreement would give the Bush administration just a fraction of the $700 billion it had requested up front, with half that total subject to a congressional veto.

Under the deal among key lawmakers, the Treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed, an approach designed to give lawmakers a stronger hand in controlling the unprecedented rescue.

 

 

Toxic Loans

 

At the heart of this mess are “Toxic Loans”.

In a nutshell a toxic loan is the type made to someone who really wasn’t qualified to get a loan in the first place. Many were made with no income verification and often with the belief that prices always went up so if the person couldn’t pay the payments, he could just sell the house at a profit and pay off the loan.

 

 

Even banks that avoided Toxic Loans have been affected

 

The devastation that the Toxic Loans have caused financial institutions is far reaching.

Even banks that avoided toxic loans have been affected.

Zions Bancorp, which ranks 30th among U.S. banks, boasts a balance sheet that remained uninfected by the toxic subprime mortgage-related securities that wreaked havoc on the industry.

 

But that doesn’t mean it has escaped fallout from the credit crisis. Zions is an example of how many regional banks that avoided the lure of big profits from subprime mortgages saw their stocks dragged down anyway after the subprime blowup — the stock market’s version of throwing the baby out with the bathwater.

So you can only imagine what inevitably happened to Washington Mutual this week (who invested heavily in adjustable rate, high risk, Toxic Loans.

 

 

The collapse of Washington Mutual

 

In the biggest bank failure in U.S. history, the Federal Deposit Insurance Co. seized Washington Mutual’s assets Thursday. The FDIC then quickly sold most of WaMu  (that’s assets and liabilities) to JPMorgan.

Simply put, WaMu was victimized by a classic “run on the bank.” Customers withdrew $16.7 billion in a 10-day period following the bankruptcy of Lehman Brothers, leaving WaMu “with insufficient liquidity to meet its obligations,” its regulators determined.

A longer explanation is WaMu was victimized by mismanagement and misguided bets on exotic (and toxic) loans such as option adjustable-rate mortgages.

The deal has major ramifications for JPMorgan and the banking industry as a whole.

For the vast majority of people who bank at WaMu which had 2200 branches and $188.3 billion of deposits as of June 30, the important thing to remember is your deposits are insured up to $100,000, and the Federal government will go to every extreme to make sure it’s available.

“There will be no interruption in services and bank customers should expect business as usual come Friday morning,” FDIC Chairman Sheila Bair told reporters last night.

 

How we got here

 

During the housing bubble, vast quantities of home loans and incredible profits were being made. This attracted PRIVATE market participants, to offer and bundle loans as investments to sell on Wall Street to investors. This allowed the subprime and “Alt A” mortgage markets to explode. With Private investors bundling and selling loan bundles as mortgage backed securities the appetite and profits skyrocketed.

Bottom line: As long as some investor further down the pipeline was willing to buy and invest in mortgages and mortgage bonds, front-end lenders and brokers were able to make more and more loans and it almost seemed like there weren’t any rules or limits.

 

How things have changed

 

But that was then. Beginning in 2007, the subprime market started imploding. Rising delinquencies on the underlying loans caused losses to mount on mortgage investments. Falling home prices only made a bad problem worse. Liquidity drained out the market as investors started dumping subprime mortgage bonds.

 

For a while, Wall Street and Washington tried to sell Main Street on this idea that it was a “subprime” problem only. They said it was “contained.”

 

Sure enough, we soon started hearing about emerging problems in Alt-A loans.

(Those are mortgages made to borrowers with higher credit scores, but other risk factors).

 

For instance, a loan might be considered Alt-A if it requires interest-only payments, it’s made against an investment property, and the underwriter wasn’t required to verify the borrower’s reported income.

 

Two of the biggest Alt-A lenders during the bubble were none other than IndyMac and Washington Mutual (both of which, as we all know, just failed and were taken over by the FDIC).

 

Lenders responded by tightening lending standards across the board.

 

Tighter lending standards are preventing many troubled borrowers from refinancing into new loans.

 

Because the financial institutions and lenders are sitting on piles of mortgage backed securities and loans that they cannot sell, they do not have the funds or ability to invest in new loans. This had a large part to do with the current credit crunch and mortgage crisis.

 

Unless the government steps in to buy these loans and alleviate the burden from the financial institutions the entire US Financial System could be in jeopardy.

Hopefully the government bailout will turn out to be a solid investment over the next 10 years and the government and American Tax Payers will actually make money on the bailout. That remains to be seen.

 

 

How these events will affect you and me.

 

WAMU to follow INDYMAC’s lead

 

As you most likely heard, IndyMac Bank recently was taken over by the FDIC.

At least 25,000 homeowners that had their home loans through IndyMac Bank recently got a gift letter from the Federal Regulators–offering them a new, more affordable mortgage payment.

This left a lot of homeowners wondering if they could be as lucky as these mortgage borrowers from the recently failed IndyMac Bank.

The Federal Deposit Insurance Corporation (FDIC) is offering IndyMac borrowers significant concessions on their past due mortgages–lowering interest rates to as low as 2 or 3%, extending terms to as long as 40 years, waiving traditional loan modification fees, reducing homeowners mortgage balances and holding payments under 38% of borrower’s gross income.

For good reason this leaves a lot of homeowners wondering why only IndyMac borrowers are getting such a good deal.

Well as it turns out the FDIC’s program is not as unique as it sounds.

In a recent statement by FDIC Chairman Sheila C. Bair says she advocates “a systematic and streamlined approach to loan modifications to put borrowers into long-term, sustainable mortgages.” The hope, according to FDIC officials is that this program will become an industry model.

Loan Modification Update

Washington Mutual will follow Indymac’s lead and will begin to relook their mortgages and offer loan modifications to homeowners that present a convincing case that it makes sound financial sense to modify the homeowner’s current loan rather than allow it run its current course.

Although certainly not streamlined or mainstream loan modifications are generally available to all borrowers in trouble. A loan modification, also known as a modified refinance, is simply a negotiation between a lender and a borrower that yields a restructuring of loan terms without refinancing. This often means a new payment and rate.

Up until recently 80% of homeowners attempting to modify their loans were unsuccessful.

Many borrowers in need of a loan modification were finding it difficult to get started. Calling a lender directly can lead to confusion or loan officers attempting to refinance already troubled mortgages into worse.

Most lenders had not set-up processes to handle a high volume of loan modification request. This lead to requests being bounced around or even lost until it is too late to avoid foreclosure.

Most experts suggests that if you are having trouble making your mortgage payment or facing a significant interest rate or payment adjustment to search out a loan modification expert. And you do not have to be late on your mortgage to receive a loan modification.

There is a complex set of procedures, negotiations, and documentation that needs to be completed. In most states this process needs to be performed by an attorney or properly licensed counselor.

There is a lot of pressure for banks to modify loan terms and keep borrowers in their home. Considering the current housing marketing and declining home values, lenders are often finding loan modifications more financially attractive than the expenses of foreclosure.

However, it seems that the key to borrower success is navigating the red tape and unfamiliar internal processes at banks and lenders (especially lenders that are performing large volumes of loan modifications for the first time like Countrywide, IndyMac and Washington Mutual) and this is why working with professional loan modification experts can be extremely important.

If you would like to know if your current mortgage and financial situation qualifies for loan modification, simplylog onto http://www.americanmortgagereliefservices.org/qualifying.htm  and fill out the Evaluation Form attached in this email and fax it back to us.

 

You can also go to www.AmericanMortgageReliefServices.org  for more information. 

 

LATEST MORTGAGE RELIEF NEWS 

How housing rescue bill can help you

The legislation – likely to be enacted soon – devotes $300 billion to helping troubled homeowners avoid foreclosure. See if you qualify.

NEW YORK (CNNMoney.com) — The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.

President Bush is likely to sign the bill into law within days. After the law kicks in on Oct. 1, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program – but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.

Here’s what homeowners need to know.

Who’s eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage – and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it’s to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home’s appraised value at the time.

How can I apply?

Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.

How does the refinancing process work?

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.

But lenders won’t sign off on a workout unless they think that they’ll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home’s current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home’s market value.

If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.

What does it cost?

There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.

However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.

Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they’ll pay a “3% exit fee” of the mortgage principal to the FHA when they resell or refinance.

Plus, they’ll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.

After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.

What will I save?

Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.

In areas that have sustained huge price drops, such as Sacramento, Calif., where prices have fallen by about 30% over the past year, some loans might be reduced by more than 40%.

Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months. 

LATEST MORTGAGE RELIEF NEWS

Senate passes landmark housing bill

Controversial measure aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie. Bush is likely to sign it soon.

 

NEW YORK (CNNMoney.com) — The Senate on Saturday overwhelmingly passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac.

The House passed the bill on Wednesday just hours after President Bush reversed his long-standing vow to veto the bill. Bush is expected to sign it soon.

The legislation, one of the most far-reaching on housing in decades, marks the centerpiece of Washington’s efforts to address the nation’s housing meltdown.

“This legislation won’t perform miracles. But as others have said, it’s a step – and I hope an important step – to putting our nation on the road to economic recovery,” said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and a principal author of the bill.

Following the vote, Dodd said he will meet on Tuesday with representatives from the Treasury, the Federal Reserve, the FDIC and the Department of Housing and Urban Development to discuss how the legislation can be implemented as quickly as possible. “I’m not going to tolerate a slow walk,” he said.

Though the Senate vote was 72 to 13, the bill was not without its staunch opponents.

Sen. Charles Grassley, R-Iowa, the leading Republican taxwriter, had supported earlier versions of the legislation but objected to the rescue plan for Fannie and Freddie. “This bill has fallen prey to the special interests on Wall Street and K Street at an unjustifiable expense to taxpayers and homeowners on Main Street,” Grassley said.

The White House also objected to parts of the bill, including aid to states to buy foreclosed properties. But White House Press Secretary Tony Fratto said the measures concerning Fannie and Freddie are “urgently needed now … President Bush will sign this bill when he receives it, despite our concerns with some provisions.”

The bill has two principal objectives: to offer affordable government-backed mortgages to homeowners at risk of foreclosure, and to bolster Fannie and Freddie with a temporary rescue plan and a new, more stringent regulator.

Helping at-risk borrowers

Provisions in the 700-page bill that would most directly affect consumers and communities include:

Increase the Federal Housing Administration’s role. The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes’ current appraised value.

The cost of the new FHA program – which would begin on Oct. 1 and be in place for just a few years – would be funded by fees from Fannie and Freddie, along with fees paid by both lenders and borrowers.

While the bill authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO’s assessment of who is likely to qualify under the program and accounts for a certain number likely to default anyway.

(Here are more details on this provision.)

Establish a stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the two government sponsered enterprises (GSEs) are – a major concern in the markets that has sent stocks in both companies plunging.

Permanently increase “conforming loan” limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.

The FHA maximum loan limits for high-cost areas would also increase to $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because they’re more likely to be traded if they are considered conforming.

Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments.

Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.

Create an affordable housing trust fund. The bill establishes a permanent fund to promote affordable housing. The fund would be paid for by fees from Fannie and Freddie.

Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders and not homeowners.

Bolster Fannie and Freddie

Concerns over whether Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) will have enough money to weather future losses in the housing market sent shares plummeting in recent weeks. Since the beginning of June, Fannie’s stock price has dropped 57% and Freddie’s plummeted 66%. For the past year, they’re both down roughly 85% as of the end of trade on Friday.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

To help stabilize markets, Treasury Secretary Henry Paulson asked Congress to temporarily empower Treasury to offer the companies a backstop if needed. Consequently the housing bill now includes provisions that let Treasury over the next 18 months offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies.

Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.

The Congressional Budget Office on Tuesday estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie’s and Fannie’s losses could cost the government $100 billion. 

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House OKs mortgage rescue

House votes to offer as much as $300 billion in mortgages and to back up Fannie and Freddie. Bush says he’ll sign it. Senate approval is likely.

NEW YORK (CNNMoney.com) — The House on Wednesday voted 272-152 to pass sweeping legislation that will offer up to $300 billion in assistance to troubled homeowners and throw government support behind mortgage finance giants Fannie Mae and Freddie Mac.

The nearly 700-page measure will now go back to the Senate, where final passage is expected. It’s not clear when the vote will occur because of a Republican filibuster threat.

The legislation has won the support from key senators in both parties, and on President Bush withdrew his long-standing veto threat on Wednesday. “The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets,” White House spokeswoman Dana Perino said.

The legislation is the centerpiece of Washington’s efforts to address the nation’s housing meltdown.

“This is the most important piece of housing legislation in a generation,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who led the Senate’s efforts on the bill.

Critics find much to dislike about the multi-pronged plan. They argue, for example, that the bill gives “a blank check” to the Treasury to spend on helping Fannie and Freddie, despite assurances from Treasury Secretary Henry Paulson and Democratic leaders that the authority granted Treasury by the bill is unlikely to be used.

Supporters note that while no one likes every provision in the bill, the housing crisis and market instability demand action.

“This isn’t a perfect solution by any means,” said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. But, he added, it enjoys support from a broad and unlikely coalition, including bankers, housing advocates and governors and mayors struggling with the foreclosure crisis.

Over the past year, housing prices have fallen more than 15% nationwide, according to the S&P/Case-Shiller Home Price Index. More than 340,000 have had their homes repossessed by banks during the first six months of the year, up 136% from the same period in 2007. The number of delinquent mortgage holders during the same period has risen to 1.4 million, up 56% from a year earlier.

“Enactment of the bill is too politically important to both parties for either side to let the legislation die,” said Jaret Seiberg, a financial services analyst for the Stanford Group, a Washington policy research firm.

Boosting Fannie and Freddie

To help stabilize markets, which were shaken in the past few weeks by steep declines in the stock prices of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Treasury Secretary Paulson asked Congress on July 13 to give the Treasury power to provide a liquidity and capital “backstop” for the two companies.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

The bill allows Treasury over the next 18 months to offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies if necessary.

Shares of Fannie closed 12% higher and those of Freddie 9% on Wednesday. Fannie’s stock is down 79% and Freddie’s 84% over the past year.

“This [backstop] sends a signal … to help calm the market, that we’ll not walk away,” said Sen. Richard Shelby, R-Ala., the lead Republican on the Senate Banking Committee.

Shelby, saying the country is “in a real crisis,” has long advocated for stricter oversight of Fannie and Freddie. “I believe if we’d pushed the GSE legislation four or five years ago, we wouldn’t be here today,” he said.

Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.

In a speech in New York on Tuesday, Paulson characterized the proposal as a way to support Fannie and Freddie and bolster the capital markets and economy.

“The best way to protect the taxpayer is to have very flexible powers which are temporary,” Paulson said.

While the bill sets parameters on the Treasury’s authority, it doesn’t necessarily force its hand, Seiberg said. For instance, the measure requires the Treasury to take into consideration the need that it should be given priority over other GSE investors when it comes to being paid back. But “consideration” means “the Treasury has discretion in what it can seek. It doesn’t have to ensure it gets paid back first,” Seiberg said.

The Congressional Budget Office on Tuesday estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie and Fannie’s losses would cost the government $100 billion.

Helping at-risk borrowers

The bill also aims to help homeowners at risk of foreclosure and to bolster regulation of Fannie and Freddie. Among other things, it would:

Increase the Federal Housing Administration’s role. The FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if lenders agree to write down loan balances to 90% of the homes’ current appraised value.

Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home’s appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.

The cost of the new FHA program – which would begin on Oct. 1 and be in place for just a few years – would be funded by fees from Fannie and Freddie.

While the bill authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO’s assessment of who is likely to qualify under the program and who is likely to default and lose their home anyway despite being in the program.

Steve Preston, secretary of the Department of Housing and Urban Development, which oversees FHA, called the bill “a mixed bag.” He said in a statement that the measure “ties our hands” by making it impossible for FHA to charge higher rates to riskier borrowers. The bill calls for a 12-month moratorium on so-called risk-based pricing for FHA loans.

“Now, FHA will be required to increase prices on all customers or eliminate its refinancing program for subprime borrowers at a time when they need it the most,” Preston said.

Establish a stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the agencies are – a major concern in the markets that has sent stocks in both companies plunging.

Permanently increase “conforming loan” limits. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,000 from $417,000.

The FHA maximum loan limits for high-cost areas would also increase to $625,000. Higher loan limits will make it easier for borrowers to get mortgages, because they’re more likely to be traded if they are considered conforming.

Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments. It would be reduced gradually for single filers with adjusted gross incomes above $75,000 and for joint filers with AGIs over $150,000.

Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance. The seller-funded program is largely the reason why the agency’s reserve has fallen by $4.6 billion, according to FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.

Create an affordable housing trust fund. In the first three years of the FHA refinancing program, fees paid by Fannie and Freddie – based on a percentage of their new mortgage activity – would help defray potential government losses from loans that end in default. The fees would later pay for a permanent fund to promote affordable housing. Critics question, among other things, how Fannie and Freddie will be able to pay the fees if they are as undercapitalized as many say.

“It’s not only bad policy, it’s irresponsible,” said House Financial Services Committee Ranking Member Spencer Bachus, R-Ala., during the House floor debate Wednesday. He noted that a year ago the GSEs had $106 billion in market capitalization and today they have roughly $20 billion.

Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders and not homeowners. But given the administration’s push to get a Fannie and Freddie rescue proposal in place quickly, Democratic leaders decided to keep the provision in the bill, sensing the president wouldn’t kill the bill over it given its other priorities.

- CNN congressional producers Ted Barrett and Lesa Jansen contributed to this report. 

 

LATEST MORTGAGE RELIEF NEWS

How housing rescue bill can help you

The legislation – likely to be enacted soon – devotes $300 billion to helping troubled homeowners avoid foreclosure. See if you qualify.

NEW YORK (CNNMoney.com) — The House on Wednesday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac.

If the bill is now passed by the Senate and signed by President Bush, who today withdrew his threat to veto it, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program – but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.

Here’s what homeowners need to know.

Who’s eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage – and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it’s to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home’s appraised value at the time.

How can I apply?

Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.

How does the refinancing process work?

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummented by as much as 20%, that will mean a substantial loss for the lender.

But lenders won’t sign off on a workout unless they think that they’ll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home’s current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home’s market value.

If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.

What does it cost?

There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.

However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.

Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they’ll pay a “3% exit fee” of the mortgage principal to the FHA when they resell or refinance.

Plus, they’ll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.

After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.

What will I save?

Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.

In areas that have sustained huge price drops, such as Sacramento, Calif., where prices have fallen by about 30% over the past year, some loans might be reduced by more than 40%.

Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months. 

http://portal.hud.gov/fha/sf/svc/loanmodfact.pdf

The Loan Modification options provides for either a permanent change in one or more of

the terms of a mortgagor’s loan, which allows a loan to be reinstated and results in a

payment the mortgagor can afford. Ref: Mortgage Letter 2000-05.

FACTS

A permanent change in the interest rate.

Capitalization of delinquent principal, interest, or escrow items.

Possible extension of loan term.

The use of any three of the above items will result in the re-amortization of the loan.

Maximum interest rate adjustment to current market rate plus 150 basis points

although at mortgagee’s discretion, note interest rates may be reduced below

market.

All or a portion of the PITI arrearage (Principal, Interest, and Escrow Items) may be

capitalized to the mortgage balance.

Foreclosure costs, late fees and other administrative expenses may not be

capitalized. Mortgagees may collect the legal and administrative fees (resulting

from the canceled foreclosure action), from mortgagors to the extent not reimbursed

by HUD, either through a lump sum payment or through a repayment plan separate

from, and subordinate to, the modification agreement.

No administrative fees for completing the Loan Modification documents can be

passed on to the mortgagor.

The modified principal balance may exceed the principal balance at origination.

The modified principal balance may exceed 100% loan-to-value.

Mortgagees may re-amortize the total unpaid amount due over the remaining term

of the mortgage, or may extend the term not more than 10 years beyond the original

maturity date or 360 months from the due date of the first installment required under

the modified mortgage, whichever is less.

All Loan Modifications must result in a fixed rate loan.

The Loan Modification must fully reinstate the loan.

Subsequent defaults are to be treated as a new default.

ELIGIBILITY

Minimum of 12 months elapsed since loan origination date.

The mortgagor must be 62 days delinquent (3 full payments due and unpaid) or

more.

Default due to a verifiable loss of income or increase in living expenses.

The Loan Modification mortgage must remain in first lien position.

Revised – Sep 11, 2007

Loan may not be in foreclosure when executed.

Owner-occupant, committed to occupying property as primary residence.

Mortgagor has stabilized surplus income sufficient to support the Loan Modification

mortgage.

Does not have another FHA-insured mortgage.

PROCEDURES

(1) Mortgagee is required to assess the mortgagor’s financial condition.

(2) Mortgagee must verify the property has no adverse physical conditions.

(3) Home repair costs may not be calculated into the Loan Modification.

(4) Mortgagee must comply with State and Federal disclosure laws or notice requirements,

including whether recordation is necessary to maintain first lien position requirement.

(5) Loans reinstated using a Loan Modification within the past three (3) years requires

written justification prior to a subsequent modification.

(6) Subsequent reason for default cannot be related to the previous reason for default.

My Vote	All Votes
Aye	Ayes:1
Nay	Nays:0

Emergency Mortgage Loan Modification Act of 2008

To remove an impediment to troubled debt restructuring on the part of holders of residential mortgage loans, and for other purposes.

Other Bill Titles (3 more)Hide Other Bill Titles

• Official: To remove an impediment to troubled debt restructuring on the part of holders of residential mortgage loans, and for other purposes. as introduced.
• Short: Emergency Mortgage Loan Modification Act of 2008 as reported to house.
• Short: Emergency Mortgage Loan Modification Act of 2008 as introduced.

 

 

 

 

 

 

In the News

May 09, 2008 House Passes Comprehensive Housing Package

To speed loan modifications and keep more families in their homes, this package includes HR 5579 to provide mortgage servicers with clarity and certainty …

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Source: Trading Markets (press release), CA

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April 15, 2008 MBA Responds to Loan Mod Legislation

The Mortgage Bankers Association (MBA) believes a new house bill—The Emergency Loan Modification Act of 2007 (HR 5579)—has the potential to be a help and a …

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Source: DSNews.com, TX

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April 12, 2008 WITNESS LIST: Capital Markets Subcommittee Examines Legislation to …

“HR 5579 is one potentially important and effective response to the current problems in the mortgage marketplace. In brief, our bipartisan bill aims to help …

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Source: Trading Markets (press release), CA

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See most useful news articles

Blog Coverage

July 10, 2008 Loan modifications…will they offer enough relief?

A growing number of homeowners are facing the harsh reality of their loans re-setting to a higher interest rate with little or no relief in site. With property values lower in most cases from the highs of a few years ago, …

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Source: In Shallow Waters Mortgage Blog

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June 08, 2008 Home Buyer Tax Credit Key To Reviving Housing, Builders Tell Congress

To speed loan modifications and keep more families in their homes, this package includes HR 5579 to provide mortgage servicers with clarity and certainty for their actions, and protection from such lawsuits for specified loan …

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Source: Palm Desert Real Estate, Serving Golf Communiti…

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June 04, 2008 - Understanding Foreclosures – Can You Workout the Problem?

Currently HR 5579, titled the “Emergency Mortgage Loan Modification Act of 2008” is being debated in Congress. It has been placed on the calender, but is still in committee and has yet to be voted on. According to it’s description it is …

 

Mortgage relief plan should eventually boost banks

By MADLEN READ

 

updated 2:36 p.m. PT, Mon., July. 28, 2008

NEW YORK – Congress’ plan to allow people to refinance into more affordable mortgages won’t just relieve thousands of homeowners — it’s also expected to save the banks who issued the loans billions of dollars.

Most banks will end up losing much less money handing mortgages over to the government than they would if the loans defaulted and the homes went into foreclosure. Plus, it will be up to the bank to decide whether to allow the homeowner to refinance.

“The banks should be thrilled with this,” said John Vogel, professor of real estate at Dartmouth College’s Tuck School of Business. “The banks have been pushing it; this is as good a deal as they were going to get.”

The legislation, which the Senate approved during a rare Saturday session and which President Bush is expected to sign into law, is expected to affect at least 400,000 homeowners. It comes after several months of discussions between lawmakers and lenders; banks including Credit Suisse and Bank of America Corp. submitted proposals.

Banks and other mortgage holders will likely save some $16 billion if they let homeowners refinance into mortgages issued by the Federal Housing Administration, estimated Ladenburg Thalmann analyst Richard Bove. That’s assuming that banks will lose roughly $25,000 per homeowner by selling their mortgages to the FHA, and that they would eventually lose about $64,000 per homeowner, on average, by allowing homes to foreclose.

“I don’t think it helps the banks in the near term, but I think it’s an enormous boost in the long term,” Bove said.

The government’s decision to set aside $4 billion for communities slammed by foreclosures should also help to stabilize tumbling home prices, experts say.

The plans, however, are not being seen as an ultimate panacea to the housing and financial market crises. First of all, if banks and mortgage servicers decide they don’t want to allow their borrowers to get FHA loans, they don’t have to.

The reason behind this rule is that it allows banks to be more flexible, said Bob Davis, executive vice president at the American Bankers Association, which advised Congress on aspects of the legislation. If a bank wants to keep its customers, it can let them refinance within the bank as an alternative to turning the mortgages over to the FHA.

But the rule could also mean that banks, hoping to avoid immediate losses, won’t offer relief to as many homeowners as the government intends to, according to Tuck’s Vogel — he said the 400,000 figure “might be optimistic.” And if homeowners don’t think their banks will allow them to refinance into FHA loans, they might still decide to send in their keys and walk away from their loans, Vogel said.

Another point of contention is the idea that American taxpayers are paying for the risks other people took. In the current legislation, there is little specificity about “bailing out institutions because of where they were located and what markets they were hit by, rather than those that took big risks,” said Brad Neigel, a senior analyst at the financial services research firm Aite Group.

Meanwhile, it is unlikely that permitting struggling homeowners to refinance their mortgages will stanch the growing number of bank failures. Since the credit crisis began last summer when mortgage defaults began spiking, nine banks have been seized by the Federal Deposit Insurance Corp., including IndyMac Bancorp.

Institutions that are sitting on enough capital should be able to take the initial hits from selling off their mortgages at a loss and eventually come out ahead, Neigel said. But, he added, “the ones that are really struggling, that are really undercapitalized, will fail. They’re not going to be able to take losses.”

And there’s no guarantee that a refinanced loan will not eventually become a foreclosure for the FHA, Neigel said. “You wonder, are we just putting a Band-Aid on a bigger problem that isn’t being addressed?”

It is unclear at this point the extent to which banks and investors who issued and bought risky mortgages will offer the FHA refinancing option. The American Bankers Association’s Davis said he expects the majority of the loans sold to the FHA to come from securitized pools of resold and repackaged mortgages.

Citigroup Inc., for one, said it expects to participate in the refinance program, but that “once the final regulations are available from the agencies, we will be better positioned to evaluate the scope of our participation,” a Citigroup spokesman said in a statement.

Wachovia Corp. and Washington Mutual Inc. also expressed support for the plan. A Wachovia spokeswoman said the bank “agrees that enactment of this legislation will help to stabilize and strengthen the housing finance system,” and a WaMu spokeswoman said it believes “this legislation will provide additional tools and expanded options for borrowers and lenders in addressing troubled loans.”

As of Monday afternoon, JPMorgan Chase & Co. and Bank of America Corp. did not offer any comment regarding the legislation.

(This version CORRECTS SUBS 4th graf, bgng The legislation … to corrects House to Senate.)

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Housing relief: We’ll need more to aid communities

Bill that Bush signed will bring relief to only a small percentage of people

By JOSE A. GARCIA Copyright 2008 Houston Chronicle

Congress and the president need to do more to regulate the home lending industry. The bill President Bush signed into law does not go nearly far enough. And it does not recognize that the home lending crisis is having a disproportionate impact on black and Latino families.

More than 50 percent of blacks and 40 percent of Latinos who got mortgages in 2006 were steered into subprime instruments, according to the Center for Responsible Lending. By 2007, as the adjustable interest rates on subprime mortgages soared, hundreds of thousands of families lost their homes.

Neighborhoods targeted by mortgage brokers and lenders have been devastated, as home values and family net worth plummet due to a high concentration of foreclosures.

In seven of the 10 metro areas with the highest foreclosure rates in June, Latinos are at least one-third of the population, according to RealtyTrac. In two of them — Merced, Calif., and Salinas-Monterey, Calif. — more than half the population is Latino.

In Detroit and Miami — the cities with the 13th- and 15th-highest foreclosure rates — blacks account for nearly a quarter of the population.

Because of the subprime meltdown, homeownership gains for people of color have been set back nearly half a decade, with more than $213 billion in lost home equity. The consequences of this asset depletion are clear.

High foreclosure rates have decimated tax bases in the worst-hit localities, which could mean cutbacks in essential spending — on social programs such as health care, child care and schools, as well as on infrastructure like bridges and roads.

Beyond the data, the ruins of the foreclosure boom are visible around the country.

In Cleveland, streets in some formerly vibrant neighborhoods are lined with boarded-up windows. Foreclosure and sheriff-sale signs abound. Vandals and vagrants have replaced playing children.

An increase in the foreclosure rate to about 2.8 foreclosures for every 100 owner-occupied properties in one year corresponds to an increase in neighborhood violent crime of approximately 6.7 percent, says a study conducted by the Woodstock Institute, a policy center that promotes community reinvestment and economic development.

The bill that Bush signed will bring relief to only a small percentage of people who face foreclosure. And it won’t do enough to restrict the predatory practices of the lending industry.

According to “Beyond the Meltdown,” a recent Demos (the organization I work for) report that analyzes the history of home lending and new law, the federal government needs to create broad, no-nonsense rules for the lending industry.

Rather than simply mandate thou-shalt-nots in an effort to clean up the industry, policies should aim at promoting straightforward and responsible business practices that ensure a fair and reasonable relationship between lenders and borrowers. This regulatory system should cover everyone from mortgage brokers to lenders to mortgage securitizers. In addition, a watchdog agency with a clear commitment to the public interest should provide oversight.

Civil rights laws such as the Fair Housing Act need to be updated to reflect modern homeownership. The federal government should ensure access to mortgage products with fair terms for communities of color. It should also impose penalties on lenders who violate lending regulations.

For many American families, especially blacks and Latino families, the current housing crisis shows no sign of abating.

Despite the new law, we still need to address this crisis. And now we have to rebuild our communities from the bottom up: with jobs, education and, yes, affordable housing.

If the federal government does not assist our communities any further, the crumbling will continue.

Garcia is a senior research and policy associate at Demos (demos.org), a national public policy center. He wrote this for Progressive Media Project, a source of liberal commentary on domestic and international issues affiliated with The Progressive magazine.

Foreclosure attorneys doing loss mitigation?

By: Housing Wire staff
February 28, 2008

Here at the MBA Servicing Conferencein New Orleans, we’re attending plenty of sessions. But the most interesting of the day was a Freddie Mac-led panel featuring vice president of servicing and asset management Ingrid Beckles, who said the GSE spent $12 million last year on loss mitigation incentive payments.

Part of that program includes a pilot that pays foreclosure attorneys for identifying qualified borrowers and getting them in touch with the servicer before the foreclosure is completed – a program that Freddie said today at the conference that it’s expanding.

Reuters’ Lynn Adler covers the session:

The program started last year in fives states and will include 19 states that represent 85 percent of Freddie Mac’s business, according to Freddie Mac spokesman Brad German.

In 2007, the program helped about 18,000 borrowers whose loans were about as deep into the process as they could go to avoid foreclosure, he said.

“I don’t care if I compensate the attorney and the servicer for the workout – it’s better than a foreclosure,” Beckles added. The aim is to modify loans to “truly viable homeowners” as much as possible, she said.

What wasn’t covered is how the attorneys are absolutely ramping up for this business; many are opening up their own “loss mitigation departments” that replicate what loss mitigation pre-foreclosure does. Most traditional loss mitigation stops when foreclosure proceedings begin, something that the attorneys in the field now see as a key differentiator for their business.

One large attorney group we know of – LOGS – already has an entire division dedicated to loss mitigation.

Here at HW, while the thought of a foreclosure attorney leading up loss mitigation sounds kind of freaky-deaky, someone’s got to do it. And it’s clear at this point that the servicers don’t have the capacity or processes in place to take it on.

Editor’s note: An earlier version of this blog post stated that LOGS performed loss migitation via off-shore facilities. While LOGS’ principals maintain an active interest in a call center with offshore operations, company representatives say that the network performs its own loss mitigation directly via its attorneys and/or its domestically-domiciled HEART Financial Services division.

 

 

QUOTES:

NEW YORK – President Bush signed into law a sweeping housing bill that aims to boost the struggling housing market and bolster mortgage finance giants Fannie Mae and Freddie Mac.The Senate voted 72-13 in favor of the bill on Saturday, after the House passed it three days earlier.

WASHINGTON – President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so.

the wide-ranging legislation – considered the most significant housing measure in decades

 

The legislation is regarded as the most significant housing bill in decades. It won approval from lawmakers eager, in an election year, to come up with an answer to the growing housing crisis.

The number of homeowners who could lose their homes to foreclosure by the end of 2009 is estimated by some to be around 2.8 million. Under the legislation, 400,000 having trouble with payments could avoid it by trading their loans for new, more affordable mortgages NEW YORK(CNNMoney.com) — The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure

 

Their banks would have to agree to allow the swap and to take a large loss in exchange for avoiding the lengthy and costly foreclosure process.

 

 

NEW YORK(CNNMoney.com) — The Senate on Saturday passed a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure

 

lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.

But lenders won’t sign off on a workout unless they think that they’ll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis.

 

NEW YORK – Congress’ plan to allow people to refinance into more affordable mortgages won’t just relieve thousands of homeowners – it’s also expected to save the banks who issued the loans billions of dollars.

CNN

 

What the housing bill means for you

 

By Holden Lewis •Bankrate.com

 

The housing rescue bill, soon to become law, is full of goodies and not-so-goodies for homeowners and those who aspire to be homeowners. Here are some highlights.

 

First-time homeowner tax credit

 

The law will extend a tax credit of up to $7,500 to first-time homebuyers. A first-time homebuyer is defined as someone who hasn’t owned a home in three years.

 

The tax credit is for 10 percent of the purchase price, up to $7,500, but phases out for higher-income homeowners. Homeowners are eligible for the tax credit if they bought after April 8 of this year and before July 1, 2009.

 

This is a tax credit, not a deduction. It reduces the homeowners’ tax bill by up to $7,500 for the tax year in which the purchase was made. If you buy a house this year, you get the tax credit for the 2008 tax year — the one with a filing deadline of April 15, 2009. If you buy a house next year by the end of June, you get the tax credit for the 2009 tax year. It’s a one-time credit; you don’t get to keep taking it year after year. There is a catch, and that is that the money has to be repaid over 15 years, starting two years after you buy the house. That makes the tax credit an interest-free loan. If you take the full $7,500 tax credit, your income tax bill will increase by $500 a year for 15 years. If you sell the house before then, you’ll have to pay Uncle Sam the remaining balance.

 

Complex issues, such as divorce, death, sale of the house at a loss and conversion of the house into a vacation home are accounted for in the law.

 

Forgiveness to allow refinancing into FHA

 

A lot of people have fallen behind on their mortgage payments after the rates went up on their adjustable-rate mortgages, or ARMs. And they can’t refinance into fixed-rate loans because their homes have lost value, and they owe more than their houses are worth. Soon to be a law, the housing rescue bill seeks to help these people get out of trouble. It encourages lenders to forgive some of their debt so they can refinance at  ower amounts into mortgages insured by the Federal Housing Administration, or FHA.

 

It works like this: The lender has to forgive all the debt above 90 percent of the home’s current appraised value. If that leaves you scratching your head, here is a hypothetical example, using round numbers: Sometime before Jan. 1 this year, you bought a house for $125,000 and got an ARM for $110,000 after making a $15,000 down payment. But the house lost value. Now it’s worth $100,000, based on an appraisal.  Meanwhile, the ARM’s rate went up and you can’t afford the full payment every month. Under this law, the lender would forgive everything you owe above $90,000. Let’s say that you owe $105,000 of that original $110,000 loan. The lender would forgive $15,000, and let you pay off the loan for $90,000. The lender would not be allowed to seek any of that $15,000 later.

 

That allows you to find another lender who would underwrite a $90,000 mortgage to be insured by the FHA. That loan amount would include the upfront FHA insurance premium of roughly $2,700. Again, there is a catch. If you take refuge in this program, you’ll have to share your home-price appreciation with the FHA. If you sell the house (or refinance the loan) less than a year after refinancing into the FHA loan, the FHA gets all of the house price appreciation. The FHA’s cut decreases over the next five years — but never goes below 50 percent.

 

What does this mean to the borrower? Take the example above. You refinanced when the house was appraised at $100,000. A little over two years later, you sell the house for $120,000. You split that $20,000 difference with the FHA. In this case, because it’s between two and three years later, the FHA gets 80 percent. The FHA would get $16,000 and you would get $4,000.

 

The equity-sharing arrangement goes like this: If you refinance or sell less than a year after getting the FHA loan, the government gets 100 percent of the home price appreciation. If it’s more than a year but less

 

than two years, the FHA gets 90 percent. The FHA’s cut then decreases by 10 percent until the five-year mark. Anytime after that, the FHA gets half of the appreciation, no matter how long you have the loan or own the house.

 

This arrangement will encourage homeowners to keep their FHA-insured mortgages for at least five years, but to refinance before home prices zoom upward again.

 

 

 

Working with home equity debt

 

 

 

The government has been trying all year to encourage lenders to forgive debt so homeowners can refinance their loans for lesser amounts and remain in their houses. Lenders have been reluctant to forgive the debt. The FHA-refinance plan is another way of encouraging debt forgiveness. Among the sticking points: Many homeowners have home equity lines of credit or home equity loans. In most cases, these lenders will lose  that entire loan balance under the FHA-refinance plan. The new law is low on specifics, but it gives the FHA permission to give second lienholders a cut of the home price appreciation proceeds that the FHA collects.

 

 

 

Down payment assistance soon to be a thing of the past

 

 

 

The housing rescue bill, soon to be a law, bans down payment assistance programs such as the ones offered by Nehemiah and AmeriDream. The ban goes into effect Oct. 1.

 

 

 

Down payment assistance programs took advantage of a loophole in the way the FHA treats down payments. To get an FHA-insured mortgage, the homeowner has to make a down payment of at least 3 percent.  Homeowners don’t have to save even that much; the 3 percent can come as a gift from family members or nonprofit organizations.

 

 

 

Regulations don’t allow the home seller to provide the down payment money. That’s where down payment assistance programs come in. They are nonprofits. That allows the seller to give the 3 percent down

 

payment money to Nehemiah or AmeriDream, and then Nehemiah or AmeriDream can turn around and “give” the down payment to the homebuyer as a “donation.”

 

 

 

Fannie Mae and Freddie Mac don’t allow sellers to indirectly give down payments to buyers. But the FHA has allowed this type of transaction for years. The FHA has long complained that down payment assistance

 

programs artificially inflate house prices, and that loans using down payment assistance are more likely to default. But prominent congressional democrats have protected the down payment assistance programs on

 

the grounds that they allow many minority families to become first-time homebuyers.

 

 

 

House democrats wanted to keep the loophole open, and Senate leaders wanted to close it. With this law, the Senate won.

 

 

 

Property tax deductions for all homeowners

 

 

 

Under current law, you can deduct your property taxes from federal income tax — but only if you itemize deductions on Schedule A. That leaves out people who don’t have enough deductions to warrant filling out

 

Schedule A. They have to take the standard deduction — and that means they can’t deduct their property taxes.

 

 

 

The housing rescue bill, soon to be law, changes that. For homeowners who pay property taxes, it increases the standard deduction by $500 for single filers and $1,000 for couples filing jointly. This will be a boon to people, such as retirees, who own their houses outright, and therefore don’t pay any mortgage interest, so they can’t itemize.

 

 

 

You can’t increase the standard deduction by more than the property-tax bill. So if you’re married filing jointly and you pay $800 in property taxes, you get an $800 deduction, not a $1,000 deduction.

 

 

 

Loan limits extended permanently

 

 

 

There are maximum amounts for loans that the FHA will insure, and that Fannie Mae and Freddie Mac will guarantee. Those limits were raised temporarily this year. The new law raises limits permanently. For FHA-insured mortgages, the new limit will be 115 percent of the median home price in that area, up to $625,500. That provision will affect loan limits in higher-cost areas. In lower-cost areas, the current FHA limits won’t decrease.

 

 

 

For conforming mortgages — those eligible to be bought by Fannie Mae and Freddie Mac — the conforming limit will remain at least $417,000 for a single-family home. It can be higher than that. Starting next year,

 

the new limit is either $417,000 or 115 percent of the area’s median home price, whichever is higher – up to $625,500. After that, the limits go up or down according to a price index.

 

 

 

More regulations on reverse mortgages

 

 

 

A reverse mortgage is an advance against home equity. It’s for homeowners age 62 or older, and the reverse mortgage doesn’t have to be repaid until the borrowers die or move out. Because reverse mortgages are for elderly borrowers, there is concern that dishonest lenders and brokers take advantage of borrowers. Borrowers are required to get counseling first, to learn the pros and cons of reverse mortgages. The law will result in strengthened qualifications for counselors.

 

 

 

The law bars insurance salesmen from originating reverse mortgages and prohibits originators from  requiring homeowners to buy annuities or insurance products. (There’s one big exception: The FHA insures reverse mortgages, and borrowers will buy that coverage.)

 

 

 

Finally, the law limits origination fees on reverse mortgages. They can’t exceed 2 percent of a reverse mortgage of up to $200,000. For a reverse mortgage amount above that, the limit is $4,000, plus 1 percent

 

of the loan amount above $200,000. Origination fees can’t exceed $6,000 in any case. In future years, this upper limit is indexed to inflation.

 

 

 

Manufactured housing

 

FHA-insured loans for manufactured houses are limited to a maximum of $48,000 — a limit that has been in effect since 1992. That limit finally will be increased to about $70,000 and will be indexed to inflation. These

 

are the limits for loans in which the borrower is buying only the manufactured home and not the land under it.

 

 

 

According to the Manufactured Housing Institute, the raised limit will make a big difference to thousands of families. Under the $48,000 limit, a lot of families can afford only single-section homes. The increased limit

 

will allow more people to buy double-section homes — what are colloquially known as double-wides. The law directs Fannie Mae and Freddie Mac to come up with new products and flexible underwriting standards for manufactured houses.

 

 

 

Veterans

 

 

 

Service members returning from active duty abroad will be given breaks, effective as soon as the president signs the bill into law.

 

 

 

Some protections apply to service members whose military obligations affect their ability to repay debts — primarily, reservists and members of the National Guard who are called to active duty. They have to leave

 

their jobs and, in many cases, take pay cuts.

 

 

 

For these service members, there are protections having to do with foreclosures and interest rates. If a service member had a mortgage before entering active duty, a lender can’t start foreclosure proceedings

 

until nine months after the service member returns from active duty. Formerly, the protection period was 90 days.

 

 

 

Also, when someone with a mortgage is called up to active duty, the interest rates on all previously existing debt are capped at 6 percent. That goes for mortgages — and for home loans, that 6 percent cap extends until one year after the service member returns from active duty.

 

 

 

The Defense Department will be required to provide foreclosure-prevention counseling upon request to service members who are returning from active duty abroad.

 

 

 

Miscellaneous

 

 

 

Other provisions of the law:

 

*          It will establish an Office of Housing Counseling, which coordinate all federal housing counseling functions, as well as produce booklets that will be given to people applying for mortgages.

 

*          It will require licensing and registration of all mortgage brokers. Several states have begun to license mortgage brokers and share the information through the Conference of State Bank Supervisors; this law extends that initiative nationally.

 

*     It won’t ask questions about tornadoes. An earlier version of the bill would have commissioned a study into how to “mitigate the risks to manufactured housing residents and communities resulting from tornados.” The inquiry into this head-scratcher will have to wait for another bill; it was deleted in the final version that passed into law.

American Mortgage Relief Services

 

To learn more about THE HOUSING RESCUE BILL and American Mortgage Relief Services log on to:

www.AmericanMortgageReliefServices.org

 

The mission of American Mortgage Relief Services is to ensure nationwide mortgage disaster relief through education, loss mitigation, loan modification and homeowner representation to provide the American people with immediate and dramatic relief from the current mortgage crisis.

 

AMRS is a non-profit organization. All AMRS assistance is given free of charge, made possible by the generous contribution of people’s time, money, and skills for the purpose of providing relief for struggling homeowners.