Thursday, March 12, 2009

Mortgage Rescue Details

We've been getting a number of calls regarding the new mortgage relief programs that are a part of the economic stimulus plan that was recently signed. Here are the details as they stand right now:

Fannie Mae and Freddie Mac have two programs to help out homeowners who are having trouble making their mortgage payments. The first program involves refinancing the current mortgage. It is aimed at homeowners who have a property that has declined in value. In order to take advantage of the refinance program, the homeowner must be current on their mortgage payments. The second program is aimed at homeowners who are behind on their mortgage payments or are in imminent danger of falling behind on their payments. This second program is a loan modification, and the interest rate and possibly the balance of the loan are reduced to a point where the loan is now affordable.

At first blush, these programs seem wonderful. However, there are several inherent problems.

-- The programs are voluntary. The lenders are not required to participate, despite what you may read in the paper.
-- These mortgage programs are only available to homeowners whose mortgages are either owned or securitized by Fannie Mae or Freddie Mac. "Securitized" means that Fannie or Freddie bundled many loans together and sold bonds to outside investors, using the mortgages as collateral. Securitizing mortgages keeps the flow of money going.
-- The same lenders who got homeowners into trouble in the first place are now responsible for getting them out of trouble. This suggests that incredibly unethical companies are now suddenly being run in an ethical manner. I will believe that when the banking executives stop taking million dollar trips to vacation spots, and when Bernie Madoff gives his $50 billion back to the people he suckered. Having been involved in the mortgage industry throughout the sub-prime glory days, I can say with absolute certainty that neither the banks nor their sales force (loan officers) have done anything to clean up their acts. If anything, the level of fraud and deceit is greater now than when sub-prime loans were being sold, only because everyone is desperate for money at the moment. A comfortable crook is bad enough; a desperate crook is really bad.
-- The issue of mortgage insurance has not been addressed by these programs. The government admits that these programs may not work at all because no one is willing to insure the loans.
-- These programs ignore the fact that many people in trouble have two mortgages. The guidelines say that second mortgages cannot be included in the refinance or the modification. They are allowed to be re-subordinated, meaning that the current second lien holder (the bank that owns the second mortgage) can keep their loan in place, but they must agree to go back into second lien position. These programs are basically telling the second lien holders that they will never get a dime if the house goes into foreclosure. There's not much incentive to go through all the work to re-subordinate the loan if you know you will be left holding the bag.
-- The borrowers still must qualify for these loans. If you are out of work, or over-extended on your other debt, how do you qualify for a mortgage?

None of this is to imply that the loan programs are not a step in the right direction. Unfortunately, the problem goes much deeper than most of us are willing to admit. The almost universal denial that our country is in at the moment will need to change before things can even begin to get better.

To learn more about these programs and to find out about eligibility, click on the link at the bottom of the home page on our web site. That will take you to the government site. Here's a link to our web site:

One last word of caution. The thieves will be coming out of the woodwork trying to take advantage of people who are desperate to get out of their mortgages. Make sure you read the foreclosure rescue scam warning on the government site!

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