Thursday, July 2, 2009

Loan Mortgages owned or guaranteed by government agencies are considering increase underwater limit from 105% to 125% of the value of their homes…but

Loan Mortgages owned or guaranteed by government agencies are considering increase underwater limit from 105% to 125% of the value of their homes…but will this help?

Development Secretary Shaun Donovan (U.S. Housing and Urban Development) announced Wednesday that the federal government's Home Affordable Refinance program will serve people whose mortgages are up to 125 percent of the value of their homes. Officials said in June that they were considering the move, which raises the "underwater" limit on the program from 105 percent.

The program, part of the Obama Administration's Making Home AffordableFannie Mae and Freddie Mac. initiative, applies to mortgages owned or guaranteed by government-owned mortgage giants

One would ask whose interest are they protecting…the lender or the homeowner? Place yourself in the position of the Homeowner…please. The home you own has lost 25-40% of its market value depending on where you live. You are now “maybe” given an option to refinance your home at 25% over its market value. Please sing me up. As long as short sales and foreclosures continue to increase supply, the price downward pressure will continue to slide. Every homeowner continues to lose equity and will continue to do so until the supply and demand are balanced again. We the citizens have lost trillions of dollars in market value of stock, retirement funds and home values.

We need to do is adjust the loan amounts outstanding to reflect the current market values not transfer the burden unto homeowners seeking relief. Refinancing and loan modifications programs have little to lose by adjusting the balances outstanding of mortgage loans. That’s because they will be forced to do exactly that when a homeowner sells their property in a short sales or if the lender ends up foreclosing on a property.

The economy is not going to recover until the real estate market recovers! We must keep short sales and foreclosures at a minimum to balance the supply side of inventory to engineer the US economy. Treasury Secretary, Tim Geithner, said "These are critical steps in stemming the foreclosure crisis and stabilizing the housing market, both of which are critical to our economic recovery." Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure. My message to Tim Geithner, “a well designed program is critical in stemming foreclosures and in stabilizing the housing crisis but the programs you have initiated are not working.

The Third Wave

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher. “We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s . expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.

Let stop playing around. What we need is a program is designed to Help Homeowners that are at risk of losing their homes. The number one issue is job loss! Like it or not, most working Americans have used Credit not Savings to be the safety net when income was interrupted or when unexpected large expenses occurred. With depreciated homes values and the tight credit market “Lines of Credit or Second Mortgages” are not available to those who have lost or had their income greatly reduced.

What the market needs is either a Government Grant Programs for distressed property owners or a Loan Assistance Program much like provided in a natural disaster. Remember 60% of payment defaults are a direct result of job loss due to the downturn in the economy. As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures. That’s My Take…What’s Yours?

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