In a recent article written by John Adams, borrowers in Atlanta were please to learn that the maximum loan amount was raised from $417,000 to $729,750 in some of the high cost regions. So now, borrowers with good credit may qualify to refinance and reduce their monthly loan payments for better cash flow from the savings. The mortgage refinancing details of the Obama mortgage relief plan can only help the sluggish housing market in the Georgia.
The second, and perhaps more ambitious, part of the president’s plan revolves around enticing home mortgage lenders to voluntarily modify existing loans for homeowners who are in imminent danger of losing their home. Under this plan, borrowers would see their interest rates temporarily drop to as low as 2%, in an effort to make their total housing expense fall under a 31% of gross monthly income cap. When this foreclosure prevention plan was announced, I wondered what would happen to those borrowers for whom the 2% home mortgage loan was still above the 31% threshold. Here’s the answer. In a bold move, the proposal will allow lending companies to extend the mortgage amortization schedule to as much as forty years, or, if necessary, even accept principal payments without interest. This departure from traditional repayment guidelines is nothing short of remarkable and shows the extent to which the plan hopes to provide mortgage relief.
A final feature of the plan was also made clear, and it is the incentives that lenders may receive for voluntarily participating negotiations with completed loan modifications. Lenders can receive as much as $6,000 in direct incentive payments if a mortgage is restructured and the borrower stays on track for a minimum of three years. In addition, there will be more insurance payments to holders of home loan modifications linked to declines in local home prices. The amount of those payments is still unclear, as it may relate to how many lenders choose to participate in the modification program.
Many mortgage industry insiders want to know, what happens to lenders who simply refuse to refinance or re-work a borrower’s mortgage under the president’s plan? At this moment, it looks like Congress is set to allow bankruptcy judges the ability to modify loan terms and balances when they see fit. Such unprecedented powers strike fear in the heart of lenders everywhere. What good is a loan when a judge can arbitrarily reduce the balance, lower the mortgage interest rate, or even both? My guess is that most mortgage lenders will jump on the “stability and affordability” bandwagon and take their medicine as quickly as possible.
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