Homeowner Bailout Legislation

barney-frankThere’s hope on the way for homeowners loosing or in danger of losing their homes due to Barney Frankthe housing crisis. If two leading Democrats have their way banks and tax dollars would bear the burden. Barney Frank and Chris Dodd are proposing legislation that will have the FHA back an additional $300 billion in refinanced mortgages from troubled homeowners. According to this legislation the lender or investors would reduce the current loans on the homes to 85% of the homes current appraised value. FHA would then insure the loans and give the borrowers a new loan at 90% of the new appraised values. The homeowners would immediately have 10% equity in their homes, which to me in this real estate market can be lost in 1 month if the declines in some areas continue the way they are. It’s ridiculous for these two Democrats to think the markets have stopped declining. The 10% equity will Chris Doddbe gone before the ink dries on the loan docs in some parts of the country.

From the article “Housing Rescue What You Need to Know” on CNNMoney,com you can find out more on this new Homeowner Bailout Legislation below:

In brief: Under House Financial Services Committee Chairman Barney Frank’s plan, lenders would take a hit by reducing loan balances to 85% of newly appraised home values. The government would then refinance mortgages into FHA-insured loans and give borrowers new mortgages at 90% of new appraised values. That would immediately give homeowners 10% equity stakes — and that should encourage them to keep up loan payments since they would have something to lose in foreclosure. The government would takechrisdodd the difference between the 85% and 90% of new appraised values, 5%, as compensation for taking on the extra risk. Borrowers would also be required to pay an annual insurance premium equal to about 1.5% of the loan value.

Lenders would have to opt into this plan, and the loans issued under it would only be available to borrowers whose mortgage debt exceeds 40% of their income. That would ensure that those who could afford to keep paying off their original mortgages would not deliberately fall behind on payments in order to qualify for the program.

The argument: It would rescue many homeowners from foreclosure by taking them out of high-interest rate loans and putting them into affordable fixed-rate ones. Lenders would benefit by getting most of their investments back.

If home prices go up, the government would pocket the increased value. The government would hold a “negative equity certificate.” The certificate is a lien, based on the reduction of the original mortgage balances that would have to be repaid when the home is sold or refinanced.

Who supports it: The idea is backed by both advocacy groups on the left and right. And bankers have indicated the proposed plan would be useful, according to Jaret Seiberg, an analyst with Stanford Group.

Who’s against it: The plan has attracted little opposition. Seiberg said he believes it will “form the backbone” for the legislation that is eventually enacted.

Taxpayer price tag: Unknown. It could pay for itself, but if mortgage defaults skyrocket, the FHA could be paying off claims on many loans. - more at CNN Money

I think cycles happen and in real estate this cycle has to happen without the help of Uncle Sam. There is a fairness issue involved as well. People who already lost their homes can’t get them back and Band-Aiding the situation with legislation will give false hope and extend the cycle. Let this cycle happen and let the next cycle start. I guess Government is just doing what they do best, collecting our money and spending it foolishly.

If you have any questions for us about San Diego Real Estate please call us anytime or visit our web site below.

San Diego Real Estate        San Diego MLS        San Diego Real Estate Blog

All information is believed to be correct but not guaranteed.