Our President, Barrack Obama has said “Yes” again. Our Senators have also come aboard to implement this new program. (I will not mention the amount of ear marks that where applied. I cannot imagine a Senator voting on something just to serve their best interest. A whole other Blog in itself.) Now the question is…"Will the banks come aboard?”
The survey that was taken says that only forty percent of the American people believe there should even be a bailout for irresponsible homeowners. Hardship or not! Nevertheless, let us move past that, and get to the point. The President has implemented a plan, a bail out. This is not just to give them a bailout, but it also include incentives for…paying your bills on time. This does not only apply to the consumer paying their bill, but the banking institution that is receiving it. WOW…an incentive to do the responsible thing!
I understand that there are things in life that happen that one has no control over, like loss of a job. The irony here is that this plan will not apply to these individuals. Their payments need to be paid up-to-date. The housing ratio cannot exceed 38% percent of their budget. The goal is to get it to 31%. This can be achieved by, lowering interest rates, extending the term of the loan (Obviously beneficial to the bank. They will make more interest), or giving a principal reduction. To the banks discretion of course. I have not decided if one should be rewarded for doing what they are suppose to. I will get back to you on this. As a parent, I never rewarded my son for doing the responsible thing. He suffered his own consequences when he did not. The obvious answer for all of us.
Back to the guidelines, I am getting there. The loans have to show proof of income i.e. tax returns, form 4506, two most recent pay stubs. If the borrower is self-employed, their income needs to be verified by a third party. (Such as a letter form an attorney or accountant.) It needs to be a primary resident, one to four units. This will not be done for any investment properties. The borrower needs to show an appropriate amount of liquid assets as well. These all seem like logical guidelines. The government has allowed the loans to be underwritten with three different systems. These are electronic. In the guideline, it says that the consumer has to have a certain confidence score. Who knows how that is being affected? Just as I wrote the other day…the FICO scores are adversely being affected by even ones credit card habits. This was no fault of the consumer that these companies implanted different rules themselves, lowering ones limits. Therefore, we will see how this will contribute to a modification or refinance under this program.
Last and certainly not least, the consumer has to show hardship. This seems simple enough. Between the price of groceries and the stock market and the down turn. However, those circumstances will not apply. It needs to be divorce, payment shock of an adjustable rate mortgage, or other types of payments adjusting, such as one’s credit card.
These loans are controlled and serviced by Freddie Mac and Fannie Mae. Government controlled and insured loan services. If they are not Fannie or Freddie loans, these conditions for a modification will not applied. Again, the advantage of a modification is that there are NO closing costs. There will be exceptions for the loan to value. There is a new formula that will be applied and it is not necessary to have 20% equity in order to acquire this transaction. In a refinance, one still will have to have this wiggle room.
One very important fact about this program is that the interest rate will be reduced, but not necessarily for the whole life of the loan. The rate can adjust, and will be reevaluated in a five-year period. I question this? Our new hope will either be re-elected or no longer dealing with this band aid that then has to be torn off , hopefully, in a recovered economy.
http://Yourcreditcompany.comRenee Fogle
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