Thursday, March 05, 2009

Mortgage Guidelines & How They Might Help You

Yesterday, most of us heard on the news that President Obama released the guidelines for a $75 billion foreclosure prevention/mortgage modification plan. NPR has an easy to understand synopsis of these new guidelines. Essentially it has two parts: one, to help those who are about to go into foreclosure to modify their current loans, second, to help those who have Fannie Mae or Freddie Mac loans refinance to more reasonable terms. You will not have to be delinquent or behind on your payments to take advantage of these loans. However, many experts are saying due to recent job losses many homeowners are not showing enough income to qualify for a mortgage modification.

The housing crisis is a complicated mess. The execution of the President's plan requires the same loan servicers, mortgage lenders who wrote the bad loans to modify the same loans. Does anyone else see a problem with this? It will be interesting to see if these same entities will now rewrite bad loans into good ones. Working in mortgage origination in 2004, I was astounded at the loans written. My former employer, a major commercial bank, was taking a highly conservative view of every loan. This made it nearly impossible for their originators to be competitive in the market (and make money!) but it has proved to make them a stronger bank today. Or at least not as financially weak as their competitors. It will be interesting to see how this all plays out.

If you have a job, last years tax return and two paystubs it may be worth your while to see if you can refinance your underwater mortgage. The banks are finally being held accountable for the mess they helped to create. The potential payoff could be quite significant, in five years time, if the market recovers and you have a low balance, low fixed rate mortgage.

No comments: