I talk to people everyday who are unable to refinance to take advantage of today's historically low interest rates. One of the big reasons they can't do so is that the value of their house has gone down so much that they are now "under water" (they owe more on their house than it is currently worth). Certainly no lender would agree to finance a loan for say $300,000 on a house that's appraised at only $250,000. This is true even if the borrower/homeowner has good credit and enough income to make the payments.
But a bill was introduced in the House of Representatives by Rep. Dennis Cardoza earlier this week to allow homeowners to refinance an existing government-backed loan (Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA) into a new 30 year fixed rate mortgage at the prevailing market interest rate (today it's around 4.3%) with NO income verification, NO credit check and NO appraisal!
The rationale behind this is that millions of homeowners are struggling to make payments on their existing, higher rate loans but are unable to re-finance and will eventually lose their homes in foreclosure. Others, though able to make their payments but frustrated by their higher interest rate loans and lower home values, will simply choose to walk away. Since the government (taxpayers) stands to take a huge loss if that happens (Fannie, Freddie and the others own or back about 30 million mortgages), it's proposed that this would stem the tide by helping to keep people in their homes and add stability to home values.
And for those who are currently able to make their house payments but are unable to refinance or sell due to being underwater, many would spend their new found savings and further help stimulate the economy. (Refinancing a $300,000 loan from 6.75% to 4.3% would yield a savings of more than $450 per month or $5400 per year).
Sounds to me like this plan has some merit.
Let me know your thoughts by posting in the comments section below.
The new bill which has been introduced in the House of Representatives regarding refinancing a home loan with no income or credit verification and no appraisal may be helpful for a large number of people keeping in mind the present situation. However, if a person has a low income or no job and he or she refinances the loan, then he or she won’t be able to pay back the dues. Thus, this refinance of mortgage will lead to further delinquencies. In such a situation, I personally don’t think this new bill will be of great help to anyone.
ReplyDeleteHi Sara. But if, as you say "a person has a low income or no job," he or she is destined to default anyway. The proposed refinance program certainly wouldn't directly lead to more delinquencies. And it would help millions of homeowners currently struggling to make their payments on higher interest rate loans.
ReplyDelete