Here are the basics of the latest mortgage bailout initiative from Fannie Mae and Freddie Mac that was announced today by the Federal Housing Finance Agency.
To qualify, borrowers must:
- Have a loan owned or guaranteed by Fannie or Freddie.
- Owe 90% or more than the home is worth.
- Be 90 days or more behind on payments.
- Demonstrate financial hardship.
- Not have filed bankruptcy.
- Presently occupy the home.
Possible remedies under the plan include:
- Interest rate reduction.
- Loan term extended from 30 to 40 years.
- Deferred principal.
Note that principal reduction is not among the possible remedies (nor should it be, in my opinion). What this means is that this plan is really only useful for individuals that really want to keep living where they are now for an extended period of time (10+ years). If you owe $400,000 on a house that’s only worth $300,000 and you want to sell a year or two down the road, reworking your loan in this manner will be of little help.
The plan goes into effect December 15th.
I’d also like to briefly address a quote from FHFA Director James B. Lockhart that appears in the press release:
Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral.
Note that when a family goes through foreclosure, it’s not as if they end up on the street. They simply have to go back to renting, which is often financially where they probably should have stayed in the first place. And somehow I don’t seem to recall ever hearing high-ranking housing officials saying the converse of the above statement during the inflation of this ridiculous bubble:
Skyrocketing home prices hurt families, neighborhoods, whole communities, and the overall housing market. We need to stop this upward spiral.
But now we have to do anything and everything to (attempt to) keep home prices at ridiculously high levels that prevent financially responsible families from becoming homeowners? Nonsense.