Homeowners, Uncle Sam to the Rescue!
Questions and answers about the Hope for Homeowners Act of 2008, passed by Congress last weekend to try to steer as many as 400,000 struggling homeowners away from foreclosure.
by Wandering Weasel
Wednesday, July 30, 2008
Questions and answers about the Hope for Homeowners Act of 2008, passed by Congress last weekend to try to steer as many as 400,000 struggling homeowners away from foreclosure:
Q: What exactly will the legislation do?
A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current value. The FHA will insure a total of $300 billion of the loans over a three-year period, but the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.
REALITY: The federal government is going into the home mortgage business to bail out the banks who were reckless in lending you the money in the first place. Basically, they will guarantee payments to the bank should you default. Your new mortgage will be at the current and more realistic price of the house, (possibly even half of your current loan amount if you wait it out) therefore the bank is going to take a smaller loss on your loan than foreclosure (auctions ain't paying what they used to) and you will owe less once the new mortgage is agreed. Now don't you feel better?
Q: Who is eligible?
A: Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence. And the borrower's income must be verified.
REALITY: To be eligible, you must be able to prove that the lender was reckless in lending you the money in the first place. He was only allowed to be this stupid until January 1, 2008. If you lied on your mortgage application, that's OK, all you need to do is fess up now and all will be forgiven. We promise not to be mad at you if you just confess your sins.
Q: When does the program start?
A: It takes effect Oct. 1 and runs through September 2011, although the FHA isn't likely to have it operating at full capacity until next year.
REALITY: We'll start bailing out our buddies as soon as we can get the printing presses cranked up and we gave ourselves 3 years after that to get all the new presses online. WOW are we going to print some money!
Q: Since lenders can pick and choose which loans to refinance, how can consumers determine if theirs will be selected?
(OMG! Maybe I won't be one of the lucky ones!)
A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans.
Even then, keep expectations limited.
"Servicers are going to be reluctant to take the government up on their offer," predicted Mark Zandi, chief economist at Moody's Economy.com. "The earliest they'll start taking them up on it is early next year. And even then it's likely to be modest."
(I can't wait that long!)
REALITY: We don't want you to know how anxious we are to pass your bad debt on to the government so we may take a week or two to get your bad loan off our plate. We found this guy who says he's an economist and we thought you'd trust us more if we used his name and made him say nice things about us. If you don't get in line pretty quick, we'll send the guys with the bayonets later.
Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?
A: Not really. The best step is to keep up your payments as best you can.
REALITY: The more you pay now, the smaller our loss will be later. Whichever way, it won't matter in the end. Your bad loan is as good as gone already and you're totally helpless anyway.
Q: But doesn't this provide an incentive to NOT pay your mortgage, if you're barely keeping ahead of bills and are underwater on your house, so you can qualify?
A: No. If your situation deteriorates enough, the bank may reject any possible new loan.
"Turning yourself into a financial basket case is not going to work," said Dan Seiver, a finance professor at San Diego State University. "If you turn into a complete deadbeat, the servicer is going to just foreclose and dump it."
REALITY: We want to scare you into making payments now - see previous reality answer. We even found this nice professor who understands nothing about the economic realities and says what we want you to hear. Pay up, DEADBEAT!
Q: So what should I be doing now besides trying to keep up with payments?
A: Talk to a local credit counselor and call the toll-free hot line of the Hope Now alliance an industry group trying to coordinate a response to the mortgage crisis at 1-888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages.
Mary Thomason, director of resource development for The Impact Group of Atlanta, a housing counseling group, also suggests tracking expenses and income closely in order to be able to forecast your cash flow for the next six months and give yourself better control of your finances.
REALITY: Get in touch with as many of the government sponsored programs as you can to bolster the statistics and give us a strong hand when we go to the FED for more money in October 2011, we're sure you will be in really bad shape by then and all the numbers will help us to get more free money. We found this director of a really cool-sounding government boondoggle who really cares and she's a nice lady. PS. Don't forget to tell her how bad your finances are as we will need this info in October 2011.
Q: If the banks and lenders refuse to write these loans, then what?
A: Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi says the next White House administration will subject them to additional regulations or investigations if they remain unwilling to take on the risks.
REALITY: Oh, they will, don't worry. If they give us any trouble, we have 2 wannabe Emperors (Sorry, Presidents), who will hassle and harrass them to death with government regulations and meritless lawsuits. See, even if they don't want this free money, we're gonna make 'em take it. Oh, and all the judges are on board too! Oh, this is gonna be sweet.
Q: What happens if I'm able to sell my home after I refinance?
A: If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. What's more, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter.
The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.
REALITY: Now, this is a little tricky so pay close attention. If you dare to sell your home and move to a new job or move in with Grandma after 5 years, we will take half of any equity you may have built up. Note that this is an open-ended proposition. If you sell your home 30 years from now, you still owe us half. We also came up with this neat little mathematical trick called a "sliding scale" to make sure you walk away wth a hell of a lot less if you sell before then. Just our little way of making sure you don't go anywhere until you're paid off.
Q: Where can consumers find more detailed information about the plan?
A: There is a six-page summary of the housing act HERE
REALITY: We took all of the bad stuff out and put what we want you to know about our little scam in this neat little Adobe file. Why bother reading the whole thing? It's really long and nobody understands it anyway. We'll let you know if you overstep your minimized rights once you sign up with your friendly neighborhood big government loan officer who is going to take really good care of you from now on. All you have to do is give up all of your rights and freedoms a little at a time so you won't even notice their loss until it's too late and we own your scrawny little ass!