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President Obama's Latest Mortgage Moves

Posted by The Aramco Group on Wed, Mar 7, 2012 @ 08:03 AM

During his State of the Union address six weeks ago, President Obama focused more on the housing crisis than he did in his previous two SOTUs combined (albeit three years too late). Yesterday, in his first press conference of 2012, he returned to the topic.

The President discussed providing housing relief for members of the military and veterans and refinance assistance for responsible homeowners (I get nervous whenever I hear the administration use the term "responsible," since it puts the definition of what constitutes responsible in the President's hand - in other words, responsible becomes what he says it is.).

According to the administration, the FHA will cut its fees for refinancing loans already insured by the FHA. It estimates that two to three million borrowers could be eligible for this savings, providing the typical FHA borrower with the opportunity to save about a thousand dollars a year through refinancing than they could have under today’s fee structure.

The other announcement is a very good one, particularly here in San Diego and in North County where we have so many military personnel (and thanks to each and every one of them for their service). On top of the historic settlement completed by the Federal government and 49 state Attorneys General last month (that means in addition to), major servicers will be providing significant relief to thousands of servicemembers and veterans. Under the agreement, they will:

  • Conduct a review of every servicemember foreclosed upon since 2006 and provide any who were wrongly foreclosed upon with compensation equal to a minimum of lost equity, plus interest and $116,785;
  • Refund to servicemembers money lost because they were wrongfully denied the opportunity to reduce their mortgage payments through lower interest rates;
  • Provide relief for servicemembers who are forced to sell their homes for less than the amount they owe on their mortgage due to a permanent change in station;
  • Pay $10 million dollars into the Veterans Affairs fund that guarantees loans on favorable terms for veterans; and
  • Extend certain foreclosure protections afforded under the Servicemember Civil Relief Act to servicemembers serving in harm’s way.

I've been very critical of President Obama, but these are good moves by the administration.

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Topics: Veteran's Administration, San Diego, veterans, Carlsbad, Military, President Obama, federal programs

Interesting Take On Underwater Mortgages

Posted by The Aramco Group on Mon, Mar 5, 2012 @ 12:03 PM

One of the real estate industry sources I watch most every day is the vlog (video blog) of Brian Stevens and Frank Garay called "TBWS" (an acronym for "Think Big Work Small"). Frank and Brian are on the irreverent side, but the lads have a good sense of what's going on in the real estate and mortgage financing worlds.

Today they had what I felt was an interesting take on the mortgage principal reduction program that is part of the major mortgage banks-state attorneys general settlement announced last month.

While more complicated, the mortgage principal reduction program would basically work like this: if you are upside on your mortgage and behind on your payments, under the settlement the lien holder will reduce the loan amount to the assessed value of the house. For example, if you owed $150,000 on your mortgage but the house is only worth $100,000, and you are behind on your payments, the bank would reduce the principle to $100,000, bringing your LTV (loan-to-value) ratio down from 150% to 100% and lowering your payment.

This is a good thing; I mean, who wouldn't want their mortgage loan reduced? Until, as is often the case, you throw in human nature, which is rarely a good thing. In this case, here is the "problem." According to CoreLogic, 22.8% of homes in the U.S. are upside-down on their mortgage - that's 11.1 million homes and an increase from 10.7 million in the third quarter of 2011.

Now consider that, per Fitch Ratings, fully 75% of borrowers with an LTV of 125% or more - more than 8 million homeowners - are current on their mortgage payments. Do you see where this is going?

That means that they are not eligible for any mortgage principle reduction. Now mix in good ol' human nature, and a percentage of those 8+ million people are going to say, "Hey, I'm current and making my payments on time; why can't I get my premium reduced?" And some of those people will begin to intentionally miss payments in order to qualify for the mortgage principal reduction program and get their loan amount lowered.

An interesting problem and, more importantly, a sad commentary on our collective human character and integrity - or lack thereof.

Topics: mortgage interest rates, mortgage settlement, federal programs