Fed Q&A on Mortgage Serfdom Act

[don]

Questions and Answers for Borrowers about the
Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

• How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

• I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

• Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

• What are the interest rate and other terms of this refinance offer?

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

• Will refinancing reduce the amount that I owe on my loan?

No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

• How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?

To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

• When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.

• What should I do in the meantime?

You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:

• • information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources
  • your most recent income tax return
  • information about any second mortgage on the house
  • payments on each of your credit cards if you are carrying balances from month to month, and
  • payments on other loans such as student loans and car loans.
  
  

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

• Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

• How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

• I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

• I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

• I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

• I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

• I heard the government was providing a financial incentive to borrowers. Is that true?

Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

• How much will a modification cost me?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

• Is my lender required to modify my loan?

No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

• I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

• How do I apply for a modification under the Homeowner Affordability and Stability Plan?

You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

• What should I do in the meantime?

You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes

• • information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources
  • your most recent income tax return
  • information about any second mortgage on the house
  • payments on each of your credit cards if you are carrying balances from month to month, and
  • payments on other loans such as student loans and car loans.
  
  
• My loan is scheduled for foreclosure soon. What should I do?

Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility. We support this effort.

[petertribo]

Re: Fed Q&A on Mortgage Serfdom Act

* What happens if I know Senator _____ or Congressperson _____ or Governor _____ or Judge _____, etc.?

Call our special number 1-800-BAIL and you will be put at the top of the Bail Out Queue. Prompt attention will be paid to your Bailout needs by one of our trained commissars.

* Can I get a CRAMDOWN?

Certainly, if you know Senator _____ or Congressperson _____ or Governor _____ or Judge _____, etc? The amount of the CRAMDOWN will be determined by one of our experienced Political Influence Operatives. CRAMDOWNS arranged through the special 1-800-BAIL number average a healthy 50%!

[flintlock]

Re: Fed Q&A on Mortgage Serfdom Act

* What happens if I know Senator _____ or Congressperson _____ or Governor _____ or Judge _____, etc.?

Call our special number 1-800-BAIL and you will be put at the top of the Bail Out Queue. Prompt attention will be paid to your Bailout needs by one of our trained commissars.

* Can I get a CRAMDOWN?

Certainly, if you know Senator _____ or Congressperson _____ or Governor _____ or Judge _____, etc? The amount of the CRAMDOWN will be determined by one of our experienced Political Influence Operatives. CRAMDOWNS arranged through the special 1-800-BAIL number average a healthy 50%!

....or you are a member of the _____ union, or government employee of the_____department.

[don]

Re: Fed Q&A on Mortgage Serfdom Act

It appears the first part of this is pointless, pure Fed BS window dressing. Who couldn't refi that's 5% or less under water? No special program is needed for those 5 guys in North Dakota.

It's in Part 2 that the rubber meets the road or rather where the banksters slather. 31% cap of gross on monthly mortgage payment. The balance made up out with tax money. No loan re-write, no principal reduction. The bankster's book value is preserved. And if the debt peon is very, very good, a $1k a year principal deduction for 5 years, paid by I assume Uncle Us.

A bankster's wet dream.

Money well spent, boys, on the O-Bomb-A.

[cjppjc]

Re: Fed Q&A on Mortgage Serfdom Act

Here is a big problem. Example:

I live with my Mother or my girlfriend. We pay with no problem. But not one to pass up a good deal

My Mother or girlfriends' income is very little. The bank reloans up to 31% the taxpayer is on the hook for the rest. If you don't think this senerio is real; think again.

[strittmatter]

Re: Fed Q&A on Mortgage Serfdom Act

Obama’s Accounting Gimmick to Protect Lenders

February 19, 2009 – 4:07 pm

If Bush’s strategy for dealing with the banking and housing crises was to bury his head in the sand, Obama’s strategy has been to bury his head even deeper. The housing crisis, like the banking crisis, isn’t going to be “solved” until asset prices are allowed to fall. The Bush administrations, in concert with the Fed, had a simple strategy: throw good money after bad in order to prop up asset prices, protecting failed homedebtors and bankers from absorbing their losses. Obama has simply doubled-down on the same strategies. Literally.
The key part of Obama’s housing plan announced yesterday is to subsidize mortgage payments, reducing effective interest costs in order to put a floor under asset prices so banks and homeowners don’t have to declare bankruptcy.
(Click chart to enlarge*)
Naturally banks love the Obama plan. By subsidizing monthly payments, and not forcing banks to write down principal by more than a token amount of $1000 per year for 5 years, the plan will keep homedebtors tethered to vastly overpriced mortgages. Who does this really benefit? Not the homedebtor, who has little chance of ever building equity in the home. He’s effectively paying over-priced rent to a bank. No, the banks are the real beneficiaries.
How does subsidizing mortgage payments prop up house prices? And how does this benefit banks? Well, if homedebtors who would otherwise walk away from an underwater property can be convinced to keep making their payments, then banks can continue to treat the mortgage as a “performing loan,” which means they don’t have to write it down. The bank’s capital doesn’t suffer and the bank survives. Sort of. Capital levels are far more depleted than the official balance sheet figures suggest, of course, so the bank is basically walking dead. Hence the term “zombie bank.”
Luckily, fair-value accounting gives the lie to such accounting shenanigans. Investors know many “performing” mortgages have a high probability of default. They have no interest in valuing these mortgages at the fictitious value banks would like to pretend they are worth, so buyer bids evaporate and the market stops functioning.
But even banks can’t keep up this fiction indefinitely. As time goes on, sellers will be forced to “hit the bid” that is actually available in the market. Also, as unemployment rises, many borrowers previously categorized as “performing” will default, forcing banks to write down the mortgage. In other words, the market will eventually win. Prices will fall and the banks will be put out of business.
Accounting gimmickry facilitated by Obama’s “foreclosure relief” plan will protect banks only temporarily. To survive the crisis, the banks need more. They need the government to blow a bubble to replace the one that’s bursting. In the short-run, TARP money and accounting gimmicks can keep them in business. In the long-run, they need the Fed to reinflate prices.

Did I mention that loan modifications like Obama has in mind don’t work? Here’s a chart showing the re-default rate on modified mortgages. As you can see, a majority fall back into default within 60 days.
Click on the chart to enlarge.

The data do not auger well for Obama’s foreclosure relief plan. If he really wanted to keep homeowners in their homes, he’d have to get lenders to write down principal. They won’t voluntarily do that of course. So Obama would have to just cut a check directly to them to subsidize the write-down. Such a direct transfer from non-homeowners to homeowners would be enormously unpopular politically. See the reaction to Rick Santelli’s rant.
———-
*price/quantity figures in chart 1 don’t reflect actual figures for the housing market…they are chosen at random to illustrate the price floor concept…



P.S.

Just wanted to point out that this posting does not particularly reflect my opinion of Obama, presently. It is a fairly consise explanation of this fiasco however.

[cjppjc]

Re: Fed Q&A on Mortgage Serfdom Act

Prices don't have to keep falling. Banks must be ENCOURAGED to deal better with short sales. The people who work on short sales are slow to respond, seem very disinterested, and really act with poor business skills. You wouldn't believe how often things seem to get lost on their end. Then needs to be re faxed. Then wait, and wait for an answer. Maybe they don't realise they will be out of work when their employer goes under.

Anyone out there who has delt with these people know what I'm saying.

[Uno]

Re: Fed Q&A on Mortgage Serfdom Act

"He’s effectively paying over-priced rent to a bank. No, the banks are the real beneficiaries."

and who owns these mortgage banks? Why the Taxpayers do!

and so who are the real beneficiaries? Why the Taxpayers!

Most importantly, who takes most of the loss if the market were to adjust properly with no intervention? THE TAXPAYERS! What a mess!


GW Bush admin nationalized Fannie and Freddie and then gave away billions of taxpayer money to wall street banks with no strings attached in exchange for toxic mortgages. You the taxpayer, at that point, own a lot of underperfoming mortgages that are still going to get worse.

At that point our mortgage banking system was basically nationalized. Try getting a non government backed mortgage today.

It is not possible for the Obama admin to just go directly back to 30 year fixed mortgages, solid underwriting, and proper regulation.

The financial engineering mess dumped onto the taxpayers at the end of the Bush administration has to be dealt with, like it or not.

The absolute worse solution for the taxpayers would be to "clean out" the market at deep discount because the taxpayers are on the hook for all the loses. It is opposite of what you would think in a normal private market.

There are vulture funds out there betting on exactly that, like Wilbur Ross, raising funds to buy deep distressed assets back from the taxpayers (taxpayers take the loss) and then flip them back into the private or public sector for profits.

We need to minimize the loss to taxpayers by getting as many of these mortgages paid off in full as possible. This also helps out the recession in many ways.

If we are going to try and "spend our way out" and "reflate our way out" as most economists, politicians, bankers, status quo want, then I'd rather see the money lent directly to help homedebtors (and try to get some of the money paid back to taxpayers with interest) then anywhere else - bridges to nowhere, military contractors, huge energy firms, private bank equity bailouts, ect..

[cjppjc]

Re: Fed Q&A on Mortgage Serfdom Act

I've already gotten two phone calls from friends wanting to know how to get on the gravy train.

[Thailandnotes]

Re: Fed Q&A on Mortgage Serfdom Act

Thank you, Uno. Keep bumping this post to the top........your turn.

"
GW Bush admin nationalized Fannie and Freddie and then gave away billions of taxpayer money to wall street banks with no strings attached in exchange for toxic mortgages. You the taxpayer, at that point, own a lot of underperfoming mortgages that are still going to get worse.

At that point our mortgage banking system was basically nationalized. Try getting a non government backed mortgage today.

It is not possible for the Obama admin to just go directly back to 30 year fixed mortgages, solid underwriting, and proper regulation.

The financial engineering mess dumped onto the taxpayers at the end of the Bush administration has to be dealt with, like it or not.

The absolute worse solution for the taxpayers would be to "clean out" the market at deep discount because the taxpayers are on the hook for all the loses. It is opposite of what you would think in a normal private market.

There are vulture funds out there betting on exactly that, like Wilbur Ross, raising funds to buy deep distressed assets back from the taxpayers (taxpayers take the loss) and then flip them back into the private or public sector for profits.

We need to minimize the loss to taxpayers by getting as many of these mortgages paid off in full as possible. This also helps out the recession in many ways.

If we are going to try and "spend our way out" and "reflate our way out" as most economists, politicians, bankers, status quo want, then I'd rather see the money lent directly to help homedebtors (and try to get some of the money paid back to taxpayers with interest) then anywhere else - bridges to nowhere, military contractors, huge energy firms, private bank equity bailouts, ect..

[vanvaley1]

Re: Fed Q&A on Mortgage Serfdom Act

What's missing in this is a program for reducing inventory. That's what will drive up prices along with employment and low interest rates. Otherwise it's a calculated ripoff of the taxpayer by the bankers again...be it a bit more of a sophisticated (complex in that it does offer some relief to some homeowners and slows down the speed of increasing inventory) smoke and mirrors game. The bankers need to catch their breathe to build up capital. This provides it for them.

It will be interesting to see how the banks will 'cap' the ARM of the short term 'fixed' mortgages. Kinda like a slow guilotining of the homeowner rather than a quick one. Who said bankers and politicians didn't have a sense of humor...be it a bit grotesque.

[junkacc]

Re: Fed Q&A on Mortgage Serfdom Act

There's nothing wrong with living in urban apartments as renters. The great american dream of suburban houses miles away from work that you need to drive SUVs to and fro is part of the reason we got into this mess. You see it in every major city where more and more woodland is cut down further and further away from city centers that waste productivity, energy and resources. The era of cheap oil that subsidized this is over.

Alot of suburbia is waste and should be disposed of. They should get scrapped for bricks and mortar and left to nature to take over.

The problem with the serfdom act is that its trying to preserve this wasteful behaviour. It will come crumbling down sooner or later. So we're throwing good money after bad, punishing savers, and throwing away what little capital is left.

If this gains any traction, which I doubt it will, it will only set us up for a bigger fall in the future.