Feb 25 2009
President Obama’s Statements on Mortgages
The president says his housing rescue plan “will help responsible families facing the threat of foreclosure lower their monthly payments and refinance their mortgages.” He stated the plan won’t help real estate speculators “or that neighbor down the street who bought a house he could never hope to afford.”
Let me say upfront that I am a supporter of President Obama. I voted for him. I like the way he presents himself. I like that he is upfront and honestly admits that his plans are not perfect. He has stated repeatedly that action is needed and even if the action isn’t perfect it is better than inaction. Good stuff.
That being said I am not sure that The Homeowner Affordability and Stability Plan will help everyone that he thinks it will help.
My first point of concern is that the plan only applies to people whose mortgages are held or securitized by Freddie Mac and Fannie Mae. While this is a large number of homeowners it is not all of the people that are at risk of losing their homes. What can we do to help homeowners that owe money to other lenders?
Second, the plan does not match the current market. Freddie Mac and Fannie Mae will supposedly refinance homeowners to a 15 or 30 year fixed-rate mortgage with loans up to a maximum of 105% of the value of the home. I think this is a great adea and can help reduce or stabilize the payments of many homeowners. Particularly those that received adjustable rate mortgages (ARMs) and planned to refinance before the rate adjusted but can’t because of falling prices. Again, great stuff.
The problem with this is that all loans through Fannie Mae and Freddie Mac where the amount of the loan is more than 80% of the value of the home require mortgage insurance. The mortgage insurance companies currently will not issue policies on loans that exceed 95% of the value of the home. Also, they will not issue a policy at all if the borrowers credit score is under 680. How many of the people that are having trouble paying their mortgage are going to have credit scores that high?
How exactly are we going to make this work? Will Freddie Mac and Fannie Mae begin accepting mortgages without mortgage insurance? Will they offer their own Mortgage Insurance policy similar to FHA’s program? Will the mortgage insurance companies be given incentives to insure riskier loans?
Hopefully these questions will be answered on March 4, 2009 when the Homeowner Affordability and Stability Plan goes into effect.
