Sunday, September 28, 2008

Hope Now?

HUD's website is promoting the October 1 launch of the Hope for Homeowners Program, which promises to expand the FHASecure program to more borrowers. The details are not clear from the site's overview, although it does say that to be eligible:

-Their mortgage must have originated on or before January 1, 2008;
-Their mortgage debt-to-income must be at least 31 percent;
-They cannot afford their current loan;
-They did not intentionally miss mortgage payments; and
-They do not own second homes.

Sunday, September 07, 2008

FHFA Bailout of GSEs: More Money from Helicopters

The Feds decision to bailout Fannie and Freddie is another win for those consumers struggling with their mortgage.

What happened:

The FHFA (Federal Housing Finance Agency - created by Congress in July as part of the Housing Bill) is the government agency which regulates Fannie Mae and Freddie Mac. It took "conservatorship" control of the companies today, in an effort to establish what Treasury Secretary Paulson referred to as a "time out" period, where markets can be stabilized and the structure of the secondary mortgage market, and the role of the government in this market, can be redefined in a way that makes more sense going forward.

Why it happened:

Mounting international concern about the financial ability of the Fannie and Freddie to meet their obligations, forced the government to step in to provide explicit and official support. It has been almost universally agreed that the agencies are too large to fail; their failure would cause a global financial crisis affecting everything "from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans, and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation," said Treasury Secretary Paulson.

What it means to consumers:

-Rates and feeds may drop. The FHFA's mission is not to deliver a return to shareholders, but to stabilize the markets. This means making mortgages more affordable.

-It could help stabilize home values. More affordable mortgages means more incentive for potential buyers to jump in, and less homeowners forced to sell at fire-sale prices.

- More troubled homeowners will get help. The government does not want to foreclose on your FNMA or FHLMC mortgage, and will likely open more avenues for forebearance or modification of existing troubled mortgage loans (those with very high Loan-to-Value ratios, and/or those which have adjusted to a much higher interest rate).

- You'll pay for it in your taxes. Whether or not this government action will help you directly, there is in the short term most certainly a price tag that will be borne by taxes. The logic is that this cost is justified since the problem now not isolated to those who took out "bad" mortgages and the firms which issued them, but is affecting all aspects of our economy, as described above by Paulson.