As foreclosures are speeding up and the majority are for subprime borrowers in Adjustable Rate Mortgages (ARMs), the mortgage industry has been in turmoil. It looks like Freddie Mac, Fannie Mae, the mortgage lenders, and Wall Street have all come together to create a new product that may alleviate the pressure on these borrowers.
The new program they are planning on rolling out is called “HomeStay” and will be designed to help subprime borrowers refinance their high interest adjustable rate mortgages into stable fixed rate mortgages. The option of extending the length of the loans out to 40 years is one of the options on the table.
This is a great way for the public-private Freddie Mac and Fannie Mae to take a market that is out of control and bring some semblance of sanity to it without the government going into full bureaucratic bailout mode that will create more of a mess than it will help.
On Monday, a high-level group of federal officials, bankers and mortgage industry executives met and agreed on a goal of keeping deserving borrowers with high-risk mortgages in their homes, said Sheila Bair, chairman of the Federal Deposit Insurance Corp. Financial institutions making changes to the terms of home loans _ such as extending the initial low, or “teaser” interest rates on adjustable-rate mortgages _ may help ease the distress of borrowers who are making regular payments but facing possible default, Bair said. via BostonHerald.com.
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{ 5 comments… read them below or add one }
Blogged this topic myself yesterday.
A friend sits on the board of Freddie Mac. In Q2, look for a 50 year interest only that converts after 10 years to a 40 year fully amortizing loan. Pretty gentle in terms of payment adjustments. Now if we can get them to waive the appraisal for rate and term refi's, maybe we can help some of those under water to keep their homes.
Do you know of any lenders that are doing this
"homestay" program yet? Or is it in the works still? would like to know more about it.
Fernando,
I think it is still in the planning stages.
i am intersseted in the homestay program.
Rental an alternative to Foreclosure
Hopefully, you can find time to review a supplement to the solution proposed by President Obama for the foreclosure problem. This supplement offers a solution for those homeowners who are in default and do not qualify for President Obama's plan.
We are sending this to those who are in a position to discuss and craft a true and lasting solution, that is not at the expense of the American taxpayer.
Convert Homeowners to Renters
1. Create a rental agreement between the homeowner, who is in default, and the mortgage holder.
2. This keeps the house occupied during the slow housing market and the mortgage holder still receives an income from the property.
3. Keeping the house occupied also solves the problem caused by vacant houses, a reduction in the value of homes in the surrounding community.
4. The mortgage holder retains 100% ownership of the home and sells it when it's to their advantage.
Federal Money and Implementation
1. If additional money is required to make this a workable solution, federal money could be provided.
2. If federal money is involved, the government should be reimbursed when the home is sold.
3. Reimbursement should always be a requirement when giving taxpayers money to the private sector.
4. Since mortgage holders are not in the rental business, existing rental management companies could expand and new ones could be created.
5. This results more jobs, even in other areas, helping to improve the current employment crises.
Summary
1. The administration's current plan, to rewrite the mortgage and add federal money to slightly improve a bad situation, is still questionable.
2. Most of these people wouldn't have qualified for a mortgage in more conservative times.
3. Probably, in a few years, many will be in default again. This is not a good long term plan.
4. The American dream of owning your own home is only realistic if you can afford the added costs of home ownership.
5. There is no need to bailout the mortgage holders. There should be no quick fix for them.
6. Let them solve the problems they created by renting out the homes they own.
7. No one has been too impressed with the recent $700B bank bailout plan and the $787B stimulus plan.
8. The reason for this lack of confidence is that there wasn't a believable plan in either case.
Please give our plan some consideration. It may not be perfect, but it could be the starting point to create a believable plan by crafted those more skilled in these matters.
We are not looking for credit, but we are hoping someone will consider our idea.
February 20, 2009
John Tilton Jim Kish
Oyster Bay, NY Las Vegas, NV