How will the housing rescue bill help homeowners?

Question

Congress has passed a housing rescue bill Saturday aimed at sparing 400,000 struggling homeowners from foreclosure. How will this bill help the homeowners who cannot pay their mortgages? I feel it is only going to rescue Fannie and Freddie.

Answer 1

As you know the Senate has just recently approved the new Housing Bill designed to help American Homeowners keep their homes.  For those of you that read the verbage for the bill but did not understand it this is the breakdown:

You must have obtained the mortgage between Jan 2005 - June 2007.

More than 40% of total income must be spent towards housing payments.

Ideally if you meet these two conditions then you’ll be able to write down the value of your mortgage to 90% of the value of your property and go with a more reasonable rate since you’ll going into an FHA-backed mortgage.  Everything sounds good doesn’t it?  Not really, not once you read the rest of the verbage and go over the costs.  First off not only will you be paying mortgage insurance with the new mortgage you’ll also have to do profit sharing with FHA.  In the 1st year you’ll have to give 100% of all profits to FHA after which it will be 90% for the 2nd year and will continually drop 10% every year after before bottoming out at 50%.  What that means is 30 years from now if you own a 1.5 million dollar property you will still owe 50% of your equity to FHA.

Some of you may be thinking that this is the only alternative option available to you short of foreclosure however in many cases you can do a loan modified by negotiating directly with our bank instead of going through the FHA process.

Answer 2

Here's what CNNMoney says:

Who's eligible?

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

Answer 3

Personally, I'm against this bill on two fronts, fannie and freddie have way too much power and why should I flip the bill because borrower's, mortgage pro's and lender's alike all got too greedy.  The spending habit in the country is way out of control and it needs to be reeled it and foreclosures are doing it.  There should not be a fix to this, it has to happen, you need to flush the system get get borrower's back to budgeting and planning, mortgage pros who know what they're talking about and give borrower's the entire scenario, not what is most profitable to them and the lenders need to stop promoting exotic mortgages.  I tend to agree with you about fannie and freddie, as I think it's a no win situation.  They have a loud voice and deep economic roots so you know they cannot fail.  If they dont have capital, they can't sell stock since it's c**p so they influence rates up.  If rates go too low, the borrower has not learned their lesson either, just look at what has happened.  All these arm loans gave people great rates and low payments, even some fixed products have borrowers at 5.25-5.75%, but they still need to lower their payment, rate is not a cure all here, it's overall spending and there is no bill that will help that

Answer 4

You are correct in thinking the rescue bill passed on Saturday is for Fannie and Freddie.  This was a move by the Secretary of the Treasury to show foreign investors that the US government is willing to step up (via taxpayer money) to insure that the entire mortgage industry does not collapse.  Currently Fannie and Freddie hold nearly 1/2 of the entire mortgage debt of the US, around $4 billion.  Both government sponsored entities are in danger of collapsing.  For the sake of the entire economy this cannot be allowed to happen.  However, the new bill created more risk by shifting the burden off Fannie and Freddie and onto the shoulders of US taxpayers.  

So to answer your question, how does this help homeowners, it may help about 1-4% of all homeowners but at a gigantic risk to the entire nation....

Answer 5

It is. It's To Help the economy, Not the individual.

Answer 6

The amount of VA loans was raised but most importantly there will be a 7k grant to FIRST time home owners to buy foreclosed properties.

The entire economy will be helped getting those houses off the market and people into them.

It also pays the refi fees for people struggling, but who did not try and rip the bank off with a cash out.