Busted: Bankers and The Global Economy

July 29, 2008

Foreclosure: Minefield of Saving Your Skin

The provisions touted by government lawmakers is projected to be a real help for honest home buyers throughout the United States. Clearly, the rules do not assist speculators or business investors. Still, the “home buyer bailout” may not help as many American citizens or prevent as many foreclosures as government authorities claim.

Qualified borrowers must live in their homes with loans issued between January 2005 and June 2007, while spending at least 31% of their gross monthly income on mortgage debt. If you qualify on these standards, you can note two check marks.

Further, home buyers must prove that they cannot or will not be able to keep paying their existing mortgage while signify that they are not deliberately defaulting on their home loan to obtain lower payments. Whether a home buyer is in a current state of default doesn’t matter. Proving circumstances does. If you qualify on these standards, you can note another two check marks.

Home equity lines of credit must be retired. If you qualify, make another check mark.

Total loan debt cannot exceed 95% of your homes value. If you have 5% equity in your home, you can make another check mark. If you pass muster and want to jump for joy, you might want to think again.

Assuming that as a home buyer, that have managed to get through the personal minefield of basic requirements, you still need to get the agreement of your home loan lender. Lenders holding the original mortgage must agree to rework a loan before refinancing with government provisions can get started. The FHA mortgage bailout bill requires a lender to reduce the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by nearly 20%, a substantial hit is to be taken by the lender.

If lenders don’t believe that they will lose more money through the foreclosure process, they are unlikely to accept any possibility of refinancing your mortgage. The old lender is required to write off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. The lender also pays the FHA an up-front premium equal to 3% of the mortgage principal. The government provisions have no teeth and are wholly voluntary for all parties. You are on your own in a proverbial minefield of “what-if” rules.

Nothing is taken for granted. You will qualify on the current standards for a home loan including full verification. The strings are many. You are one of a few special people if your circumstances meet the requirements and your lender decides that it is in its favor to allow a refinance. Good luck. You might need it, at least if bankers, regulators and Congress have their way. ~ E. Manning

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