The article, Mortgage crisis: Don’t forgive debt, just postpone repayment on CNNMoney.com explained some of the details for a new refinance plan meant to help curb the many foreclosures projected over the next few years. Basically, the idea is to reset the amount of a homeowner’s mortgage so that they are only making monthly payments on the current value of the home. For example, if a home was purchased 3 years ago for $300,000 and is now worth only $250,000, the homeowner’s mortgage would be adjusted so that the they only pay the monthly payment on a $250,000 home loan. This would likely save thousands, if not millions of families hundreds of dollars a month. The best part about this new plan is that every homeowner can opt to take advantage of it, even if they are current on their mortgage.
This plan would not necessarily leave the banks high and dry because the banks are still owed the money. If the homeowner sold the home a few years later, the bank would be reimbursed from the profits made from the sale of the home. For instance, if the homeowner sold the home from the example above in 10 years for $310,000, the homeowner would get $10,000, and the bank would be entitled to the remaining $50,000 as payback on the original amount of the mortgage. It basically allows the homeowner to postpone repayment on a portion of their original home loan. This plan could help many American families avoid foreclosure, and the money lost or placed on hold by the banks would likely cost them less than if the property was foreclosed on.
As a homeowner who recently purchased a new home, I stand to benefit from this plan, but what about homeowners that bought years and years ago? Other than helping the nation avoid a possible recession, this plan does little for these homeowners financially. However, in most cases, because these homeowners have equity in their homes, they are able to capitalize on the current interest rate reductions that many recent buyers miss out on because their current loan to value (LTV) ratio is too high.
The article mentioned that there are a lot of details that still need to be worked out before anything happens. As it stands right now, it’s just an idea waiting to be implemented.
How many appraisers like this plan?
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This sounds like one of the better plans being proposed. This could possible save some of the homeowners who are just getting by. I personally would love to see one of the tax credit packages approved. By offering a good tax credit to 1st time home buyers, it would create additional demand and clear out some of the glut of inventory.
It’s a thought-provoking proposal, at any rate.
@Ashland MA Homes – it likely would help out many homeowners that are just getting by. A tax credit would be beneficial too.
New Homes Guy, thanks for the great new home info. It will save me from having to read the real estate section in every Sunday’s paper.
I think the plan is a great idea. Banks will save big in the long run instead of having to eat the whole initial loss. If banks could keep at least one-half of the homes in their portfolio on the books that are slated for foreclosure it’s bound to help the economy.
The new FHA loan amount in Maricopa County went up to $346,250. That will also get some mortgage money flowing on purchases.
It does sound like one of the better plans out there. Many of the proposals that I have heard to date include everything from the government reseting the interest rates and writing off the balance due between the purchase price and current market price to a modified payment plan that is similar to a chapter 13 bankruptcy.
@Rick – thanks for the feedback. It’s our goal to make things easier for our visitors. Yeah I also think the increase FHA loan amounts will do some good for our market.
It sounds like a decent plan. Their might be some room for fraud. I imagine homeowners will be pushing their appraiser friend for a low appraiser. It gives a lot of business to appraisers but it will also have a lot of pressure from friends to get low appraisals.
Your ability to repay is the basis for every bank or mortgage lender ’s loan decision. Simple mistakes or identity theft can effect your ability to get a mortgage or to refinance. Are you aware how lenders look at you?
This sounds like a good idea. Once the house is sold would the homeowner still owe money if the house is still worth less than the loan amount.
I think this is a good idea…and it sounds like a better plan! I like the idea that the homeowner’s mortgage would be adjusted so that they will only pay the monthly payment (of home loan) of a current worth of the house. This would indeed save thousands of dollars a month.
I hope Obama can do more on this topic. Identity theft hit hard for me so I really need help somewhere.
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The plan could work, if executed by the banks correctly. Having said this, I do think the mortgage mess will clear up on its own within 6-12 months for the most part. Obama is the man