“Fannie Mae and Freddie Mac will begin refinancing mortgages with loan-to-value ratios of as much as 125 percent,” up from the current 105 percent limit in a bid boost participation in anti-foreclosure programs.
But the basic question of whether or not a significant enough number of underwater borrowers will manage to qualify for said refinancing to slow the slide remains.
∙ Fannie, Freddie to Refinance Larger Underwater Loans [Bloomberg]
Who in his right mind would want to refi at 125% of market value? Better do a short sale with a cousin then buy it back to him at the same price + costs!
I mean, you live in a 400K house, and you’re calling Freedie to refi the house for the 500K remaining loan? Is it shocking anyone else?
A bit of math:
At 5.75% over 30 years (standard mortgage scam period), it will take you 11 (ELEVEN) years to pay off the 100K negative equity in capital.
11 years of overbloated mortgage payment for zilch, nada, niente, rien, nichts. Just to pay off your foolish 2006 overbid.
Of course, the purpose behind this plan is to REFLATE the bubble. If the property gains 25% in a year or two, then everyone will be bailed out and happy.
If the bubble doesn’t reflate, the happy home-ower will have been a renter to the bank in his “own” home for 11 years. Pride of ownership all right.
Please reduce the principals. This is getting ridiculous!
Of course, the purpose behind this plan is to REFLATE the bubble.
I don’t think so.
The purpose is as it always has been. TPTB want to slow the declines, thereby trapping as many people as possible. Believe me, thes guys know they can’t reflate the bubble. But they also know that the more $$ a homeowner pays, the more he is “locked in” to the asset. That keeps him paying on the mortgage, right into the pockets of the banksters.
See this post from 18 months ago for a slightly more fleshed out discussion:
https://socketsite.com/archives/2008/01/justquotes_just_dont_bet_on_or_call_it_a_potential_arm.html (Post at January 8, 2008 12:16 PM)
I am following you, LMRiR. They sure can’t reflate the bubble that easily. You assume they are stupid and evil. I only assume that they are stupid and misguided.
My opinion is that they 100% created this monster, will not admit any wrongdoing (they’d have to quit) and will go to extraordinary lengths never to admit it. Instead they are trying to reset the clock back to the good old days of debt-driven riches to avoid some necessary soul-searching.
They just will not let the market correct itself. Instead of 2-3 years of acute but finite pain, we’ll be living 10 years or more of death by a 1000 paper-cuts using some mortgage refi nightmarish schemes.
huh, I would have said that the purpose of this was to move more liabilities from private balance sheets to the taxpayers.
diemos nailed it. This the government making you (& me) buy the banker a chair before the music stops. F$%$#%ers. Grr…
Didn’t we hit the housing bottom 2 months ago???
diemos,
That’s very true. I had forgotten that we were on the hook for trillions in upcoming taxes for other people’s decisions. I don’t want to pay for my neighbor’s ill-timed 2007 purchase.
Given not that many have been helped by Obamas plan, and money was allocated to it. It will be interesting to see what happens to the money if the bankers don’t grab from the cookie jar, allow modifications/refis and bail people out. Where does the money from that bucket go and will the taxpayers still be on the hook?
I hope lots of people apply! It’s just 4 easy steps:
Step 1: apply for the refinancing, believing that you are under water by about 6%.
Step 2: Get the appraisal.
Step 3: when you see how low the appraisal is, realize that you are underwater WAY more than 6% and that refinancing is pointless.
Step 4: walk away.
My understanding is that the appraisals were why refinancings at 105% didn’t work: as soon as people got the appraisal, they found a much easier refinancing plan:
1. Mail keys to bank.
2. Wait 3 years.
3. Buy the same type of house in the same subdivision for 25% off (with no foreclosures for 3 years, you can qualify for a loan).
4. Laugh at your neighbors paying 1/3 more than you are.
Diemos is partially right imo. It will likely transfer a bit more to the taxpayer balance sheet. But my understanding is that most of these loans are already owned directly or guaranteed by Fannie/Freddie, so this is mostly all about trying to get underwater homemoaners to keep paying (albeit now at slightly lower rates) on a loan they would be better off walking away from.
One way or another, taxpayers are going to be on the hook for everything anyway. The banksters are going to win this – remember my words as the “record” profits roll in and the tremendous pay packages start to get a little more traction in the lame stream media.
This is really a non-story, since it applies to loans the GSEs already own or guarantee. If the government already effectively owns the house, modifying the terms to decrease defaults seems like a sensible thing to do.
Also look at the numbers mentioned in the article; this is really a tiny program.
I smell Barney Frank behind this scheme.
amused in soma, really good point. I tried to refinance my mortgage I have on a home I bought in summer 2007. It is currently $440,000 and thus a jumbo sold out in the market and owned by who knows who? Was a no-income, but asset verification loan and I have 700’s credit, lots of good mortgage history, but honestly not acceptable income.
Approached my lender Wells Fargo about a refi and me contributing money to buy down to a $417,000 conforming. Totally current with loan but want a lower interest rate.
No can do…and the income verification was not the problem as that is not part of this program. They would not do a jumbo loan not owned by the GSEs. Oye!
$440k is jumbo? Where? I thought jumbo started at $729k basically everywhere within driving distance of SF.
For Fannie it used to be $729K for high cost areas, then they lowered it to $625,500. I guess they assumed prices too a hit even in primo-lalaland and the high cost tranche is starting lower!
http://www.fanniemae.com/aboutfm/loanlimits.jhtml
For Freddie, it appears the older limits still apply from what they say on their website:
http://www.freddiemac.com/singlefamily/news/newsletter/2008/11/limits.html
Doesn’t the 729K limit expire at the end of the year? My guess is that the upper limit drops back down to 625K causing places that are now going for ~760K (729K w/ a 31K down payment via FHA) to drop to about $650K.
What’s the point? I read recently that only 13,000 loans have been modified by the existing program. If banks aren’t going to actually fund the loans, what’s the point?
Sure, on paper this can help millions of folks, but in reality, it will help maybe a few thousand at most if the government doesn’t mandate that all of these banks that took hundreds of billions in bailout money to keep from going under start loaning some of that money back out to people.
The funny thing is, most of this “money” isn’t new money at all, it’s simply recycling loans into lower rates. Of course banks aren’t interested in this, there is very strong incentive for them to keep the old loans on the books until they go bad, rather than write new loans, get less interest, then watch them go bad.
This will make no difference – foreclosure is inevitable for most of these homes, and the GSEs lose regardless of whether the loan was 100% of an overbid or 125% of an imaginary present value.
Securitized debt is becoming more correlated each day…