President Obama Offers Dublin Homeowners Chance to Refinance “Underwater” Mortgages
As a follow-up to a program rolled out in July to provide qualified unemployed homeowners a one-year break from mortgage payments, the Obama Administration and a federal housing agency recently announced that an additional two million homeowners with underwater mortgages could get a chance to refinance at historically low rates under changes to a government program. This new program is welcomed news for many residents in Dublin, San Ramon, Pleasanton, and Livermore who bought homes a few years ago and now owe more than their homes are worth.
The Federal Housing Finance Agency (FHFA) announced it would scrap a 125 percent loan-to-value cap that is preventing many homeowners from refinancing mortgages backed by the government-controlled Fannie Mae and Freddie Mac. This more ambitious refinancing program from the Obama Administration could enable more underwater borrowers who are not in default to obtain new loans. Those refinancings will reduce the returns that Fannie, Freddie and other investors stood to make from the loans, but such risk is standard for those who buy mortgage-backed securities. By cutting homeowners’ debt payments, President Obama can help improve consumer confidence and spur the economy.
To be eligible, borrowers must be current on their mortgage, with no late payment in the past six months and no more than one late payment in the past 12 months. The program waives fees for borrowers who refinance into loans with terms of less than 30 years. The goal is to encourage homeowners to pay down their mortgages faster and build more equity. “We have far too many Americans who have paid their bills and done everything right on their mortgages and yet they’re still stuck with interest rates of 6 or 7 percent,” said Shaun Donovan, the secretary of Housing and Urban Development. The existing program, he said, “has not reached the scale that we had hoped and the scale that it needs to reach.”
The new plan to help homeowners with underwater mortgages will motivate banks to refinance more loans by eliminating certain lending risks; however, it will effectively shift the increased risk of mortgage default onto the Federal government and ultimately taxpayers. The FHFA is justifying this socialization of risk by pointing to the quality of the homeowners the program is targeting. Borrowers cannot qualify unless they have been current on their mortgages, with no late payment in the past six months and no more than one late payment in the past 12 months. In other words, these borrowers have already shown that they are responsible.
Still, critics of the program are not convinced. Given the implosion of the housing market over the past few years as supposedly creditworthy borrowers defaulted on their mortgages, many see this plan as nothing more than a too-little-too-late attempt by President Obama to salvage his floundering presidency. Supporters, on the other hand, feel Fannie, Freddie, and the major national banks can and should do more. Some are calling for them to participate in a California program that offers to pay half the cost of principal reductions for lower-income and moderate-income homeowners with a demonstrable hardship, such as a severe illness or a layoff. Faced with an anemic economy and the mounting underwater mortgages, Fannie and Freddie have resisted calls for bolder plans to help out struggling homeowners by citing their fiduciary duty to taxpayers.
“Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets,” said the agency’s acting director, Edward J. DeMarco. Details about the program should be released by November 15th.
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7:32 AM on October 31st, 2011
But what about the homeowners who don’t have a Freddie Mac or Fannie Mae Loan? We have had no relief and the banks repeatedly tell us to short sale our home. We are Dublin homeowners, taxpayers, and volunteers. We owe $672K on our home. If I short sale my home for $499K why can’t they just let me keep it for $499K. It makes no sense! I’m glad the new programs help some homeowners but what about the rest of us? The programs should be universal and apply to ALL homeowners.
7:56 AM on October 31st, 2011
Agree. I have a CalHFA loan and can’t get CalHFA to even consider a mod.
11:18 AM on October 31st, 2011
Very true information. Keep in mind also those Freddie and Fannie Mae loans had to be originated before March of 2009. Current home owners are still looking for options if they bought recently and values declined. If any of your readers need more information John I would be happy to provide what I know free of charge!
11:29 AM on October 31st, 2011
Also AFAIK you’re out of luck if you have PMI or LPMI on your loan. I’ve also heard that banks are trying to convert current conventional loans to PMI. Be aware.
12:21 PM on October 31st, 2011
Last year I was looking at all my neighbors who were short selling or foreclosing on their homes thinking to myself “you’re the reason why our house is valued so low”. I apologize to anyone I spoke ill of because we unfortunately will be listing our house for sale and if we are unable to short sale we will foreclose and file bankruptcy. We’ve done everything right. We waited to get married, we waited to have kids, we saved our money, and we moved out of the “rough” area into Dublin. We are active members of the community and very proud of our city. We pay our bills on time and have never been late. We don’t want to lose our home but will have to join the crowds because we can’t get out of our high interest rate loans and we are in a “negam” and our balance goes up every month. After months of emotional breakdowns (at work, talking with friends, talking with banks) I finally am at a point where I’m okay with losing my home and ruining my credit for the next 10 years. How sad is that? Good luck to everyone else. It’s not what you have it’s what you did to survive.
10:48 PM on October 31st, 2011
Sorry to sound a bit heartless here, but I always get a bit P.O.’d when I hear people say…what has happened to them is through “no fault of ours” or “we did everything right”
Certainly there are folks that bought at the top of the market, lost their jobs etc…who truly have a hardship.
However I see too many people (a few co-workers) who bought at the top of the market, inflated their incomes to get their dream home assuming the houses would continue to increase in value….the “no way to lose” mentality.
Now I see these same folks crying foul now that their houses are 35% below what they paid. However, they still have their jobs, make as much or not more money today and can still make the payments.
I would have to say…the “fault” or “what they did wrong” was that they bought more house than they could afford or should have afforded
I would say…either default on the house and quit complaining..or suck it up….sacrifice the daily trip to Starbucks and the 500 channels of direct TV and start focusing on the problem and taking responsibility for you actions, that you willingly jumped into a few years ago.
I wonder, if the housing market was up 30% since 2006, these same folks would be telling the rest of us how smart they are to have recognized such a good deal at the time.
10:33 PM on October 31st, 2011
Who to blame. The broken congress that lead us to failure.
5:57 AM on November 1st, 2011
You can blame Congress, but let’s be honest. The financial institutions were qualifying everyone, regardless of income, for loans. Then they bundled them as high grade securities and sold them to the rest of the world. I think this is a failure to regulate financial institutions, not a problem of big government. It all happened during a Conservative Republican Administration.
7:21 AM on November 1st, 2011
And with the help of a Democratic controlled Congress!
7:41 PM on November 1st, 2011
Does nobody care about personal responsibility.
Millions…..YES millions of families chose NOT to pursue homes they could not afford.
Sure the Banks are all Evil, the Government is Evil….but where is the personal responsibility.
Also WELD, if you remember correctly (obvious a democrat with a short memory) the standards for home mortgages were significantly reduced during the Clinton years when he directed Freddie and Fannie to start guaranteeing loans to everyone with a pulse.
to encourage the modern day Roosevelt….”A chicken in Every Pot” newly minted as “everyone deserves to own a home” mentality.
I am for that…but they should have a home they can afford.
The missing part of this equation is the greed of the consumer to make their retirement funds in a few years in the housing market.
Now…they got caught with their pants down. That’s what can happend when you gamble.
Lets be honest….when houses where going up like crazy….how many conversations did you all have that included the topics of “how much higher can they go?” We all knew it was a bubble…just nobody knew when it would burst.
Funny how quickly everyone forgot about the DOTCOM bubble….where have all those self professed day trading geniuses gone?
Nobody forced people to tap their equity to buy a 50K ski boat, or second vacation home…or that trip to Europe.
People were looking at their houses as a personal piggy bank…now the piggy bank is empty.
Honestly…this may have been one of the best things to happen to our country….make people realize that home ownership is a privilege earned through hard work….not a right that the government bestows on all citizens.
Here’s my advice to all.
If you are underwater and can afford to make the payments….stay the course…work hard….cut back and save a little for a rainy day (all the cliches I could thing of)
If you are underwater…negative am mortgages etc. Stop making your payments. Stay in the house til the man comes knocking. Take the money you saved by NOT paying the mortgate and rent an apartment or house and work hard….cut back and save a little for a rainy day.
If you are underwater and can’t afford the payments. Move….rent your house or condo….live with a loss for a couple of years if you really have the dream of keeping your home. As a landlord, you can now deduct your losses (unless you have AMT) expenses etc….probably will mitigate the monthly shortfall….wait a couple three years….work hard….cut back and save a little for a rainy day. Then get your house back.
Where’s that american can do spirit. Get off the canvas and get back into the fight!
9:03 PM on November 1st, 2011
I couldn’t agree more. I’m sick of all these people who had no business buying a home continue to get bailouts. If you don’t make very much money or have a substantial job, I’m sorry, no you don’t deserve to own a home. Go rent until you can afford to be a homeowner.
10:45 AM on November 5th, 2011
I totally agree with your comment with regards to home ownership. I truly believe that the President, Senate and Congress should just say to the American people the truth about our economic situation. I am not a Democrat that will vote for Obama’s re-election next year. I am a fed up Republican. I did not like what the Republicans did in the last budget stalemate that caused our economy to skid and lose our credit rating. Republicans wants to take over the White House at the expense of the struggling 99% of the population. (Not the other 1%) I would like to have President Obama to just say to the American people that we are not in the best shape and we need an austerity period that each has to make sacrifices. Just like what Greece is planning to do. I need to hear from him that we are cutting back government spending. We also need to gradually raise interest rates to get government out of being a primary source of money for banking institutions. We are a Democratic Socialist economy. Only Democratic in our society is our freedom and our right to shape our country. We are a socialist capitalistic economy except that corporations have the power to cheat as much money as they want. “With the good graces of the government”.
One thing I don’t agree is that home ownership is not a privilege, I still believe it is an spending option. You make mortgage or rent. Rent if you cannot afford a down payment. Mortgage if you can come up with down payment and closing cost. You take in to consideration rent amount versus principal, interest, property taxes, and maintenance. If both are equal, buy a home. The problem is that Greenspan gave that avenue for all to afford a home even a neg am or adjustable mortgage is not really affordable for the home owner. The solution now is to raise interest rates. The stock market bubble burst and that was Greenspan was protecting. Big corporations need to look else where to find capital. Small businesses needs to get government financing and not through the banks. Just like student loans. But monetary policies needs to be tightened to make people start putting money in our banking system.
2:14 PM on November 1st, 2011
This is too late for another economic downturn remedy. We should have acted swiftly on this financial catastrophe on the first place. Rather than bailing out banks, we should have given refinancing options and cover the difference for the mortgage guarantees and insurance through the bailout money. End result would have been less foreclosures and short sales and still keep home prices at a manageable level than taking a big hit of 50% to 35% across the nation.
All this through the misguided monetary policy of Alan Greenspan. A person who should have not been confirmed as Fed chief if confirmation committee listened to Senator William Proxmire who foresaw Greenspan’s reckless economic policy. Moreover, this guy had connections with Charles Keating of the Savings and loans fiasco and Junk bond artist whatever his name was. He saw the writing on the wall and did not do anything or too scared to fix it. Inspite of all indications that the stock and home price bubble is about to burst. Guess what? I will not doubt that Greenspan was on the home developers pockets. All his economic policies favor the home developers. Who else is not on their pockets?