SF Mortgage Spot

What Do I Think of The Homeowner Affordability & Stability Plan?

First, a quick review of the Plan, which was passed by Congress in February 2009.  The Plan addresses two groups of borrowers:

1.  Borrowers who can benefit from lower rates but who have been unable to refinance because of lower home values, and  

2.  Borrowers who are struggling to stay current on their current mortgage.

1.  Borrowers Who Can Benefit from Lower Rates

    a.  Fannie Mae and Freddie Mac will now lend up to 105% of the current value of the home.

    b.  Loan must have been conforming at the time it was made (under $417k) to qualify.

    c.  Must be primary residence

 2.  Borrowers Who Are Currently Struggling

    a.  This is a loan modification program, lowering the interest rate for 5 years or reducing the principal owed.

    b.  Does not apply to investment properties or second homes

    c.  Do not need to be behind in payments to qualify

    d.  This program is voluntary, but loan servicers will be rewarded for modifying their loans

    e.  Borrowers will also receive annual incentive to pay on time.

I do think both parts of the program will benefit borrowers, but will have limited impact in the Bay Area, where most loans made in the past few years were higher than $417,000.  We are still waiting to hear whether the "conforming jumbo" loans of last year (up to $729,950) will be included.  I think they will, since they were Fannie/Freddie products.  So I think -- my opinion only -- that if you purchased or refinance after April, 2008, you will be able to refinance under the higher loan amounts.

At this point we have no idea what the pricing will be like on these new loans -- will borrowers really be able to take advantage of today's market rates or will Fannie/Freddie have unpalatable "add-ons" in their pricing?  Last year the pricing on the Conforming-Jumbo loan was so disappointing that I am not holding my breath!

What would really help the Bay Area would be to raise the conforming loan limit to reflect 80% of the median-priced home.

Part 2 -- Helping Struggling Homeowners, I suppose the devil will be in the details.  Will borrowers need to prove some sort of hardship or will it be enough that they have an interest-only adjustable that is about to re-set? 

Why incentivize people who make their payments on time going forward? Isn't this program targeted at "responsible homeowners" to begin with?