Help for Freddie, Fannie Loans On The Way – Should It Be?

So I heard on the news (and read on the Seattle PI) this morning that Federal officials announced a plan last Friday to rework threatened home loans owned or guaranteed by mortgage giants Fannie Mae and Freddie Mac. Sounds like a viable plan. Why not? Well, I’m in favor of helping out, but on first look, you may be shooting yourselves in the foot…

The Dirt

I tip my hat to someone that could be in that big of a hole and not had to file bankruptcy, but it would clearly be right on the fringe of needing to do so. I’m sure the people that fall into this category are going to be very grateful.

“It will reduce payments to no more than 38 percent of a household’s monthly gross income by reducing the interest rate, extending the life of the loan, deferring payment on part of the principal, and customized steps, if needed.

To encourage participation, the government will pay servicers $800 for each loan modified through the program. To be considered for the program, borrowers should contact their loan servicers.

To qualify for this program you must:

# have missed at least three payments
# have loans for at least 90 percent of the home’s value
# live in the home as a primary residence
# and not have filed for bankruptcy

About 3.3 million mortgages were at least 90 days behind on their payments or in foreclosure at the end of June, equaling about 7.3 percent of all mortgages nationally, according to the most recent data from the Mortgage Bankers Association. In Washington, just over 34,500 loans, 2.9 percent of the total, were severely delinquent or in foreclosure.

3.3 MILLION mortgages were at least 90 days behind! That’s a staggering number. I’m not sure of the details of the program, maybe I haven’t searched enough for it yet, but I’ve yet to see exact timelines on where the 90 day limit is imposed.

What If…

What if you were only 70 days behind and considering making a payment to get you out? I wonder if it may entice people that are able to pay but just haven’t to stick around for a bit longer to take advantage of the deail.

I’m not saying it is a bad deal for them, they were 70 days behind anyway, but might be costing the government via people that are going to just let their payments slide to get the help.

“Borrowers should not have to fall 90 days behind on payments before they get help, agreed Erik Hand, president of John L. Scott Real Estate’s Response Mortgage Services.

Overall, however, the program should stem foreclosures, even among owners owing more than their homes are worth, Hand said. “I do believe that once they get to that manageable payment they will want to stay in their home and stay current.”

While the program would slow the number of foreclosure homes hitting the market, the lack of principle reductions could keep many borrowers from taking part, said Don Riley, executive vice president for Windermere Services, in Seattle.

“It’s definitely a good first piece to helping the families that are on the verge of losing their homes right now,” he said.

Borrowers who are not delinquent enough for the new program have other options, the Federal Housing Finance Agency noted in a statement. It said that, while the program does not include a moratorium, qualified borrowers could have foreclosure sales suspended.”

Conclusion

I’m glad I haven’t had to be in a situation like this before. Yes, it is certainly nice that there is some help out there for people that got sucker into big loans, but I’m on the fence about whether they were ‘suckered’ or should have just paid more attention themselves. It’s not rocket science to see if you can afford “x” amount of house.

Do your homework and you won’t have to be in the situations in the first place. If you make 20k a year and are getting sold a 500k house, do the math, there are plenty of sites online that will try to hammer out what you can and cannot afford.

I’m interested to see how many of the people right on the brink just let themselves slide into the government bailout. I’m not saying I wouldn’t, heck, it’s free cake if you’re already sinking in the batter…

photos by: woodleywonderworks

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  • This is a joke. Our leaders are making every single wrong decision they can make right now for the long term health of our economy. Mortgage companies, auto companies, who’s next for a bailout? Starbucks?

    Drove by a shopping center with 2 huge retailers going out of business today: Linens n Things and Circuit City. Why don’t they get bailed out? More retailers are going down over the next year. This is only beginning.

    Contrast our policy w/ that of China. They actually HAVE the money to invest into their country and they are doing it in a great way to make them less dependent on china. Bearing on the U.S. Bullish on China long term.

    If you’re into diversification, make sure you’re diversified against the dollar and remember your income is in dollars so you better be investing accordingly. Good luck. I have a feeling we’re gonna need it.

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  • It does seem like the bailouts for “necessary” parts of our economy are somewhat arbitrary. We are worried about how many jobs the auto industry provides, but we don’t seem to be overly concerned about other areas. The other thing that’s kind of crazy is that companies that are getting a bailout (read: Citi) are STILL shedding jobs. So it seems kind of silly to assert that this bailout will “trickle down” to everyone else.

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  • Thank you for a very interesting post. It has given me some food for thought.

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