American Recovery and Reinvestment Act of 2009

Guest Post from Michael Chabot

Hi Everyone,

In keeping with the “The Good, the Bad and the Ugly” theme of previous email updates, I thought I should go in another direction with the Clint Eastwood thing thanks to the amazing effort about to be put forth by the federal government to help homeowners and homebuyers throughout the country but especially some of the hardest hit right here in Southern California.

I have some great information to share with you but first I want to make sure I thank you again for your continued business and your referrals, you are the reason I am still here to bring you this great news.  I have been through a lot these past 2 years and I have been through so much with so many of you reading this email that it is truly a joy to be able to bring you this news!

President Obama signed the “American Recovery and Reinvestment Act of 2009,” into law this past Tuesday.  This law is going to benefit first time homebuyers ($8,000 tax credit, not a loan) and is going to raise the loan limits back up to $729,750 in some areas.  Yesterday, the President announced another multi-pronged effort to help homeowners with little or no equity to refinance to lower interest rates, to standardize and speed up the modification of mortgages for certain folks and to continue to keep interest rates down with money from the Feds if you pay your mortgage on time!

I know you have a lot of questions and right now no one has all the answers.  However, we have assembled all the details that have been released so far so that you can be ready.  My recommendation is that if you are going to participate in any of these programs that you get going ASAP.  This is going to bring a tidal wave of activity to my industry which is going to further clog the system and slow things up.  I want you to know you still have a friend in the mortgage industry who still operates with integrity and still maintains the relationships necessary to get you the best rate and terms possible.

Please make sure to share this information with anyone you think could benefit which is just about everyone.  The programs will expire this year, rates are extremely volatile, appraisals are about to get a lot more challenging with the new laws and we are the only lender in town that guarantees if rates go down while you’re locked we will get you that rate!  Do not navigate this on your own or with someone who does this part time (like your banker).  You and your friends and co-workers need a full time professional to make sure you are as successful as possible and that you don’t miss the opportunity of a lifetime!

Quote from President Obama’s Wednesday Speech

“Millions of other households could benefit from historically low interest rates if they refinance, though many don’t know that this opportunity is available to them — an opportunity that could save families hundreds of dollars each month”.

$8000 Tax Credit for First Time Home Buyers

Congrats to those who already bought this year (you know who you are), you just got an early birthday gift!

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as “first time” buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)  Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.

105% Refinance? Oh Yeah!

Only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible right now.  The new mortgage, including refinancing costs, can’t exceed 105% of the current market value of the property.

This program begins March 4 and allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate.  This will benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans. The plan, however, will not reduce the loan balance.

Homeowners with debt that exceeds home value by 5% could be eligible if their lenders agree to forgive principal.  There will be no prepayment penalties for any loan. All borrowers will have to prove they have sufficient income to be able to keep up their loan payments.  What would be “sufficient proof: wasn’t yet clear.

For homeowners with loans worth more than 105 percent of the home’s value — which some foreclosure specialists say is one of the biggest roadblocks to loan modification — lenders and servicers could still opt to write down principal, but the decision would be voluntary.

A new $10 billion insurance fund would help protect lenders against losses if home prices fell further after they refinanced 100 percent of current market value.

Who is not eligible (for now)?

Those with “jumbo” mortgages don’t qualify right now – only those with “conforming” mortgages do. If you are unsure what kind of loan you have, you need to check with your lender or call me directly. In general, until the past year, loans above $417,000 were considered jumbo mortgages, and Fannie Mae and Freddie Mac were not allowed to buy and guarantee them.  Please read on for what I think will happen for those of us with true Jumbos.

Loan Modification Program

While still voluntary, the program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been resistant to modifying loans. The program would not only give lenders $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

The plan calls for servicers to reduce interest rates so that a person’s monthly obligation is no more than 38% of his or her income. Then the government would kick in money to bring payments down to 31% of the homeowner’s income. The payment would stay there for five years and then gradually revert back to the conforming loan rates in place at the time.  The reduction would come mostly through interest-rate reductions, though in some cases, principal reduction also would be an option. Borrowers would also receive incentive bonuses of up to $1,000 a year for five years for making payments on time.

Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.  Anyone with high combined mortgage debt compared to income or anyone who is underwater may be eligible for a loan modification, whether or not they are presently in default.

Borrowers with high levels of other debt, such as car loans and credit card debt exceeding 55% of their incomes, may still qualify for a modification but they’ll be required to accept debt counseling in a HUD-certified program.

The Treasury Department will now develop uniform guidelines for loan modifications, as well as require all financial institutions receiving government funds to participate in the program.  This is likely to spill over to “jumbo” mortgages at some point soon but for now it’s only conforming loans they are discussing.  All federal agencies that own or guarantee loans will have to apply the Treasury’s guidelines where appropriate.

These measures are going to entice lenders to more aggressively modify loans.  Another reason lenders will be more willing to modify your loan: The Obama administration is pushing for a change in the bankruptcy laws to allow judges to adjust mortgage loan terms (which is currently the only form of debt off-limits to judges). The hope is that more lenders will opt for the financial incentives of modifying a loan rather than take their chances with terms ordered by bankruptcy judges. The Obama administration is proposing a “partial cramdown” in which only the principal in excess of current market value would be considered unsecured debt eligible for modification by judges.

Even if the plan works as designed, millions of homeowners will not be eligible. The plan doesn’t apply to investors. The plan also won’t offer help to a homeowner who has lost his or her job and is unable to afford a new, lower monthly payment.

Do you have to kill your credit to qualify for any of this?  NO!

The main criticism of previous modification programs is that borrowers only qualified if they had stopped making payments. This frustrated those who didn’t want to wreck their credit histories by going into default and prompted others to stop making payments just to qualify for relief.

Under Obama’s plan, both those at-risk and in default qualify for loan modifications. Also, many borrowers who are current with their payments but have little or no equity in their homes can qualify to refinance to take advantage of lower interest rates which is still a better alternative.  These modifications will revert to market rates down the road and who knows what rates will be then, certainly higher than now.

Investors are welcome again!

The agencies tightened their rules last year and would not lend to anyone who had more than 4 properties.  Soon, that is reverting back to the old rule of no more than 10 financed properties.  This is great news for all of us as it will take the glut of foreclosed homes off the market.  If you can afford to buy any investment properties right now there is no better ROI out there.  I am seeing investors make 25% on their money right now because the rents and the rates are so attractive.  Plan on having a 25% down payment for any investment properties.

Mortgage Rates Hovering in the 4’s and 5’s right now

The government will continue to keep prevailing mortgage rates low by buying mortgage-backed securities issued by the agencies. This effort expands a $500 billion purchase plan announced in November which prompted mortgage rates to fall nearly a percentage point.  Rates are extremely volatile; they go up and down just like the stock market (have you seen the stock market lately?).

If you are looking to catch a great rate you really have to work with us to get your strategy outlined right away.  Often, by the time the good rates come out at 6 am the east coast grabs all that money and then rates are up by 9 am PST.  I can tell you many stories of people listening to me and being very successful and I can tell you many stories of people who waited themselves right out of a loan.  You can count on me to give you honest advice and many of you know that I have sometimes advised you not to do a loan.  Nothing has changed, I still tell you to do what I would do in your shoes, every single time.

For the record, if you are waiting for 4% rates you may be sorely disappointed.  It is highly unlikely based upon the simple math.  The government is paying almost 3% to borrow the money to lend to you, they cannot afford to have a 1% spread when the banks and the investors have to take their cut.

Final Thoughts & Future Predictions

I do not have any more information than what I am passing along to you at this point in time so please be patient while this info comes to market.  Also you should know that a lot of this depends on how quickly and widely the plan is implemented and then embraced by lenders and the “servicers” who manage mortgage payments for the thousands of investors who hold an interest in the millions of loans that were pooled, chopped into securities and sold to banks and investment funds around the world.  These roll outs have been botched up in the past and there is no reason to expect something different this time around.  It is going to take time, please be patient, stay educated and you too can take advantage of this unprecedented government intervention into housing.

What you should be doing right now:

· Please get in touch with me soon so that we can discuss your situation in detail and formulate a strategy for you.  I think many folks who are going to do this should get the ball rolling right now.  There is absolutely no cost to talk to me or even apply for a loan.  You pay when you sign on the “dotted line”

· If you have credit challenges please get your credit cleaned up ASAP.  These days credit is more important then ever, I am skilled at helping people and I don’t charge you for credit reports, ever.  I’ll even give you a copy, let’s get started!

· Keep all of your income and asset paperwork handy.  Also, please dig up that loan paperwork out of your garage, you will need it soon.

· Make sure you claim enough income on your 2008 taxes to qualify for these programs if you are self employed!  There is no “stated income” any more and it is not coming back any time soon.  Get your finances in order so that you can grab one of these loans before they disappear.

Please email me or call me with questions. I am quite busy so if it’s a quick question please email me but also please know, I am at your disposal 24/7.  I go the extra mile and I always will so please call me with anything that requires a discussion.

Also, I can’t state this loudly enough: new appraisal requirements being instituted by the agencies on May 1 are going to seriously impede our ability to help those homeowners who are tight on their equity (even up to 105%!).  Please trust that I have your best interests at heart; if it makes sense to wait or not do anything I will absolutely tell you but if you need to move, you had better get going or you may wind up with much less than you could have gotten (or nothing at all!).

Predictions

Many of you know that I accurately predicted much of what is unfolding.  Believe it or not, I am firmly convinced there is more help on the way, especially for folks in the “Jumbo” loan category that were pretty much left out in the cold on this.  Basically, I think the “Option ARM” and “Alt-A” reset wave which is coming soon is going to force the government’s hand again.  When this happens, I expect many of the same policies and procedures will apply to everyone. By the way, even if you are not in a conforming loan right now but your loan balance is below $729,750 you may still be able to refinance under the new programs.

You’ve reached the end of the world’s longest blog post!

I would be honored to work with you, your friends or your co-workers so please give me a call or shoot me an email if there is anything I can do for you, no matter how small.  Now, more than ever, the value of an honest, ethical broker is absolutely vital to your success and you have one right here.

Thank you for your time and please forward this to your friends and family!

Talk to you soon!

 

Michael Chabot
Mortgage Professional