Fha launches short refi opportunity for underwater homeowners

[blazespinnaker]

http://portal.hud.gov/portal/page/po...0/HUDNo.10-173

Basically, if your house is underwater and if you can convince your bank to write off 10% of your mortgage, you can refi for free with the FHA to the new low low rates.

Some are arguing this is useless:

http://www.zerohedge.com/article/rum...+drops+to+zero)

I'm not sure I agree.

Think about it.. your house (and all your friend's houses) are underwater by 7-12%. Your bank has been getting 'jingle' mail left and right and has all this inventory which is brining the market down even further, is all costing them a lot more than 10% on the mortgage, and they get a call from you where you say "look, I send my keys to you in a nice white envelope or you write off 10% so I can participate in this program".

The bank is going to blink.

But let's say they don't blink.. OK so what's the worst case? Worst case is your credit is shot for a few years, but the mortgage was non recourse anyways, and you were thinking of 'walking away' anyways.

At least now you have a certain amount of moral outrage that the bank couldn't come to its senses.

I think the bank is going to blink in a lot of situations.. especially those situations where people have been walking away in large concentrated groups (eg, las vegas). Places where you really are at risk of sending in the keys.

Other places, where jingle mail hasn't been prevalent, they'll probably call your bluff because they don't want to set a precedent. I guess the risk to this program though is the internet.. as people get into this program in one part of the country is it going to cause other people in other parts of the country to try it out? Banks might not want to agree to it in case the idea starts to spread that it's easy to blackmail the bank.

What's more this loan is FHA insured.. help me if I am wrong, but the FHA will bail out the Bank if you walk on the mortgage. This seems like a great incentive to participate for the bank.

This was announced in march, btw. Probably the source of all the rumors of late, though.

http://makinghomeaffordable.gov/docs...0%20FINAL2.pdf

[we_are_toast]

Re: Fha launches short refi opportunity for underwater homeowners

To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements

Why in the world would a bank want to take a 10% hit on a mortgage that is current and where the borrower is financially capable of meeting the requirements for a new loan? These are loans where the banks actually make money. The banks will loose money on people who will default because they're already behind in their payments, but these people aren't eligible for the new plan, and now they're going to loose money on people who are up to date on their payments and are fully capable of making their payments?

[blazespinnaker]

Re: Fha launches short refi opportunity for underwater homeowners

Well,a homeowner might lose his job and could tell the bank they're thinking about walking away from their house. Especially because the mortgage would be insured against default.

Then the bank might be interested.

[slippery]

Re: Fha launches short refi opportunity for underwater homeowners

Why in the world would a bank want to take a 10% hit on a mortgage that is current and where the borrower is financially capable of meeting the requirements for a new loan? These are loans where the banks actually make money. The banks will loose money on people who will default because they're already behind in their payments, but these people aren't eligible for the new plan, and now they're going to loose money on people who are up to date on their payments and are fully capable of making their payments?

This was exactly my thought process. What is the incentive for the bank? The whole plan seems designed to fail, even for the small number of homeowners that qualify.

If the house is only 15% underwater, and is performing, I don't think banks are going to take the 10% hit. Maybe this program is designed for Fannie/Freddie mortgages because losses at Fannie/Freddie can be infinite and are absorbed by the Treasury.

[blazespinnaker]

Re: Fha launches short refi opportunity for underwater homeowners

Again. Homeowner loses job. No choice but to walk away unless bank can help reduce payments.

Do I need to paint a picture?

[Starving Steve]

Re: Fha launches short refi opportunity for underwater homeowners

Why should the saver and the pensioner have to subsidize, via the government, a write-down in mortgage payments? And what is the dead-beat borrower going to do with the money he saves each month? Some guesses: a new pick-up truck, more whores and more trips to Vegas, more booze and cigarettes, more parties, a big screen TV, a mobile home, granite counters?

This is how an economic recovery is created? Destroy my retirement savings so that the dead-beat can piss-away more money?

Fast-forward five years on, thanks to the federal govn't writing-down mortgages to zero interest rates, the dead-beat says: "My home is worth more than I paid for it because its financing --- its trust-deed chain ---- is so delicious and transferable to new buyers. So I should be rewarded for my low interest rate trust-deeds that come with the property."

Keeping interest rates too low for too long makes a joke out of everything, all mortgages, even the currency itself. This was exactly how the inflation took-off in the 1970s: fossil mortgages became valuable and added value to property in the U.S. The Fed turned the real estate market upon its ear, and under Bernanke now, the Fed appears to be doing the same thing again.

[Rajiv]

Cramdown

Here is an interesting thought for you - Cramdown

What is a cramdown?

A cramdown is when a bankruptcy court forces a bank to modify a loan, such as a mortgage, to reduce the principal debt, change the interest rate, or take other steps to help the bankruptcy filer. Under current bankruptcy law, courts can’t force these changes on mortgages taken out on a filer’s primary residence, as they can for car or student loans.

What’s the significance?

As a potential fix to the subprime mortgage meltdown, consumer advocates have pointed to cramdowns as a possible way to help underwater homeowners successfully modify their loans. It was introduced for inclusion in the Emergency Economic Stabilization Act of 2008, but the financial industry voiced strong opposition and it was ultimately dropped.

Who’s talking about it?

Mike Konczal describes how loan modification programs could have succeeded if cramdown were allowed…David Dayen points out that cramdown would have helped HAMP incentivize banks to modify loans…Elizabeth Warren’s Netroots Nation panel discussed how walking away from a mortgage may be the only option for underwater homeowners without cramdown…Jean Molloff describes the predatory loan modifications going on without cramdown…Annie Lowrey reports that cramdown may be resurfacing and could get a second chance.

[Starving Steve]

Re: Cramdown

I remember what the realtors would say to me in South Lake Tahoe, Cal. in 1981: "Why do we need your cash, S.Steve? The banks are just falling all over themselves to lend money on real estate. In fact, we would rather have sales via trust-deeds than cash because our commission is better with deeds of trust. We like creative finance. And Prop 13 just makes it even better for real estate, plus the mortgages are deductable! Is this a great country, or what? Plus, the future is solar energy and everyone is moving to the sun-belt from the rust-belt. We are the future. We love Ronald Reagan."

So fast-forward now to 2010, and I hear this talk about so-called, "predatory lending"; obviously, it is all just a big lie to get the government to pour even more money into reflating the real estate bubble. Demos or Repukes, it is all the same party. It is all the same game: re-flation, in-flation, bubble-mania, Reaganomics, supply-side economics, and screw the saver.

"Cramdown" is another word for the same old game: "Screw the saver". "We love inflation." "Deficits don't count." "We can grow our way out of it."

"CRAM-DOWN". This is how the Americans think.

[thriftyandboringinohio]

Re: Cramdown

...word for the same old game: "Screw the saver". ...

That will always be true. The over-indebted borrow, by definition, owns nothing to encumber, pillage or steal.

When asked why he robbed banks, Willie Sutton answered "Because that's where the money is."

Same principle at work here.

[thunderdownunder]

Re: Cramdown

http://www.cnbc.com/id/15840232/?vid...4239366&play=1

Insanity is doing the same thing over and over again with the same result.
I feel sorry for those who have lost their means of support but more debt is not going to help you.
Is it a backdoor bailout for banks - Yes
Is it Fair to all - No
How does it make you feel - I for one just gave up all hope. Its a full blown Circus
I want my free stuff and I want a Pony and I want You to pay for it.