President Obama’s Foreclosure Plans Will Help Refinancing Loans
Posted on March 12, 2009
Filed Under Government Homes | 5 Comments
It is of great import that President Obama’s foreclosure plans will help refinancing loans. Most of the loans have gone underwater with the loans being bigger than the value of the house. This lack of equity has stood in the way of refinancing. But that hurdle will soon be overcome and give relief to 4 to 5 million homeowners.
The plan also reaches out to those who are current in their mortgage payments but cannot refinance because of prevailing low interest rates and nil equity on their properties.
Generally homeowners need 20% equity to qualify for refinancing into cheaper loans. During the housing boom many bought houses without making any down payment at all. Meanwhile property values have sharply declined. This means that those who did make the required down payments find that they are disqualified.
Refinancing is possible through Private Mortgage Insurance or PMI. But it is difficult to avail of these loans in many parts of the country. The declining markets have put off the insurance companies and they are reluctant to advance loans. The firms are fearful that housing prices may fall further.
The net result is that thousands and thousands of Americans are being unable to refinance. The irony is that though the prevalent mortgage rate is hovering around 5% the homeowners are stuck with 65% rates or may be even worse.
As per the plans of Obama government the mortgage giants Fannie Mae and Freddie Mac (government backed) will waive the rule of 20% on any of the mortgages they hold. They will even permit some of those who have slightly gone underwater to also benefit from this new measure.
The Federal Housing Finance agency said in a recent correspondence to PMI firms that the plan is “an avenue for the borrower to reap the benefit of lower mortgage rates in the market.”
There are however many important restrictions to the plan of Obama. There will be no cash-out refinancing. The balance on the new loan cannot be in excess of the dues of the previous mortgage exclusive of settlement expenses, insurance fees, house tax and fees for the association. This coverage would not be provided with those never came under PMI.
To avail of the programme the homeowners would have to refinance by 10 July 2010. The programme also sees that the loss of the lenders is reduced.
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