Rondaben
May 1st, 2008, 11:13 AM
Background:
70-90 percent of all subprime and Alt-A loans funded over the last 5 years have been done using Adjustable Rate Mortgages. Furthermore, 80+percent of these mortgages have a LTV (Loan to Value--i.e. how much equity you have in the house by downpayment) of less than 15 percent. Housing prices have already dropped in the last 18 months by at least 15 percent across the nation with many expecting a drop of an additional 25 percent over the next couple of years. That means that the vast majority of homeowners who purchased int the last 5 years will be upside down in a house that they can not refinance or afford when the mortgage adjusts. Big problem.
Enter the Federal Government with a plan to nationalize homeownership. The Hope for Homeowners Act sponsored by Chris Dodd has strong bipartisanship support in congress and has been endorsed by all 3 presidential candidates. Here is the basics of it:
Lenders holding the mortgages are looking at a dramatic increase in defaults and forclosures. The FHA will guarantee the mortgages protecting the lenders. Lender participation is voluntary but if they do so they get:
1. legal immunity from homowners suing them for predatory lending practices
2. Federal guarantee of the loan and repayment by FHA if the loan defaults
3. Subsidies for underwriting to the tune of around $20 Billion to start with
Homeowners will get:
1. A reduced principle on the house--i.e. the negative equity will be "erased"
2. For this the homowner will pay the government 3% of the value of the mortgage for being kind enough to reset the loan value
3. The homeowner will pay the FHA insurance of 1% of the mortgage value per year
4. If the homeowner sells the property, profits will be split with the government FOREVERMORE. If the sale takes place in year 1 after the refinance, the government keeps 90% of the profit; 80% the second year; 70% the third year; 60% the 4th year and 50% of the future value of the house if it is ever sold. That means you pay of the loan, decide to sell it in 30 years when you retire? You give the government half.
5. Any deficiency in the value of the home at sale is the responsibility of the homeowner to reimburse the Federal government. Further decreases in the value of homes will be a non-dischargeable debt owed to the government (currently, deficiencies are not counted as taxable income).
70-90 percent of all subprime and Alt-A loans funded over the last 5 years have been done using Adjustable Rate Mortgages. Furthermore, 80+percent of these mortgages have a LTV (Loan to Value--i.e. how much equity you have in the house by downpayment) of less than 15 percent. Housing prices have already dropped in the last 18 months by at least 15 percent across the nation with many expecting a drop of an additional 25 percent over the next couple of years. That means that the vast majority of homeowners who purchased int the last 5 years will be upside down in a house that they can not refinance or afford when the mortgage adjusts. Big problem.
Enter the Federal Government with a plan to nationalize homeownership. The Hope for Homeowners Act sponsored by Chris Dodd has strong bipartisanship support in congress and has been endorsed by all 3 presidential candidates. Here is the basics of it:
Lenders holding the mortgages are looking at a dramatic increase in defaults and forclosures. The FHA will guarantee the mortgages protecting the lenders. Lender participation is voluntary but if they do so they get:
1. legal immunity from homowners suing them for predatory lending practices
2. Federal guarantee of the loan and repayment by FHA if the loan defaults
3. Subsidies for underwriting to the tune of around $20 Billion to start with
Homeowners will get:
1. A reduced principle on the house--i.e. the negative equity will be "erased"
2. For this the homowner will pay the government 3% of the value of the mortgage for being kind enough to reset the loan value
3. The homeowner will pay the FHA insurance of 1% of the mortgage value per year
4. If the homeowner sells the property, profits will be split with the government FOREVERMORE. If the sale takes place in year 1 after the refinance, the government keeps 90% of the profit; 80% the second year; 70% the third year; 60% the 4th year and 50% of the future value of the house if it is ever sold. That means you pay of the loan, decide to sell it in 30 years when you retire? You give the government half.
5. Any deficiency in the value of the home at sale is the responsibility of the homeowner to reimburse the Federal government. Further decreases in the value of homes will be a non-dischargeable debt owed to the government (currently, deficiencies are not counted as taxable income).