Most everyone knows by now that there's a flood of refinancing going on. Refinancing is front page news in the mainstream media. The low rates are artificially induced by the government's intervention into the mortgage securities market. Many homeowners are going to benefit. A lot of the money saved will be spent. That's good for the economy.
I think the Washington policy wonks got it wrong. Big surprise there. The intervention is not helping many people who need and deserve help the most. This post is not to argue whether or not the government should intervene. That decision is made.
The people benefiting from this artificially induced largess are homeowners with exceptional credit and lots of equity. There are millions of homeowners out there, through no fault of their own, who no longer qualify for the mortgage someone made them two or three years ago. (Dan Green explained this quite well one year ago here.)
These families are making their payments. They are making difficult lifestyle choices in order to enjoy the benefits of homeownership. Maybe they're carrying too much debt now, but what young family trying to get started doesn't? A combination of their debt to income ratio and loan to value ratio and not their payment history is preventing them from refinancing. Preventing them from putting an extra few hundred bucks in their pocket every month.
These families are struggling but still getting by; still living up to the terms of legal contracts that they entered into with eyes wide open; still managing to pay Peter and Paul because they forego some of the other luxuries in life. Now if you could help these families, wouldn't that help move the country towards better economic times? I'm just asking.
I'm not smart enough to know exactly how to help these families, but if they're making their payments at six and one-half percent or more, I think they'll make them at five percent. Despite the fact that their equity may be low or non-existent and that their debt to income ratio is high. Instead we're shutting these people out because they don't meet the new lending guidelines arbitrary rules.
Someone needs to start asking how we can help families who make responsible life choices.
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I'll be back in a day or so with my continuing series on 2009 real estate closing title insurance changes that may impact you.
Yes I agree. The main stream family that wont qualify under new guidelines needs a way to take advantage of reducing there mortgage as well.
I have found that many responsible borrowers are benefiting from the current refi boom. Most folks are getting thirty year fixed with no closing cost under 5.5%. So there is a benefit
Thanks
Tony
Negative equity is the elephant in the room.
The government is there to help the voter who doesn't need help. The mortgage industry loves the low rates and the business it brings.
Geez. Another handout to the financial industry.
It appears that the home onwer with negative is still behind Wall Street in line for help.
I love the new rates - re-fi'd and am saving a bunch. Still think it comes back to not everyone is responsible enough to be a home owner...it is a privledge, not a right
Hi ! I refi'd too, Just to get a lower payment, I know the economy is bad and I think they should reach out and help the people who are responsible and in this situation through no fault of there own. It would also free up some extra money they might spend on something else! I think sometimes the government acts before it thinks.
The homeowner you describe seems to be a small voice among giants. The little guy seems to get the short end of the stick. I thought the governments job was to look out for the little guy.
However....if a homeowner has a FHA loan...it does NOT require an appraisal and those people CAN qualify for a new improved lower rate....we just had a member of of SOI call who feared she may have to sell....she had added to her loan in a re-fi a couple years ago, the market tanked and there was a better than even chance the house would not appraise for the price for which it would have to list. We talked further...an FHA loan does not need an appraisal and she was able to lower her mortage 1.5 per cent!!!!!
John, you're absolutely correct. The refinancing will only help established homeowners and not the ones currently in trouble.
I agree, but don't they need at least 20% equity to be able to refinance? Do you reccommend contacting their existing mortgage company first to try to renegotiate their interest rate?
I don't know that there is much the government can do. Most of what they do ends up being symbolic gesture in the end. The brain-trust just isn't big enough.
Hi John:
The product Sally and David are talking about is a streamline FHA refinance. It allows those with FHA loans to take advantage of lower rates without the normal limitations/costs of a refinance. I believe Jeff Belonger has written about this.
You do not need 20% equity to refinance. But if you have less than 20%, your mortgage will be more costly. In rate, and because of mortgage insurance.
There are NO LENDERS who want to take a chance on loaning money when thir loan is bigger than the value of the property.
This means there are lots of folks out there who cannot refinance due to lack of equity.
This was a tool that was relatively easy to use, and while it doesn't help those on the front lines, it does help in two ways:
1) by lowering payments for some group (like you mentionned) that may not appear to need it, but it may help later if they loose a job or experience another other economic shock. They might also spend some of that new savings, helping us out of recession.
2) by attracting tremendous investor interest back to the market which will help to stabilize property values, however lower, and help keep the next group from having to be shipped to the foreclosure war's front line.
You nailed what a topic that is causing American people so much frustration right now...so many feel that they are struggling to do what's right, make their legal committments, but "Joan and Jack" down the street just cried out that they can't do it, and are going to have to let it go and someone swoops in to help them...while the other homeowners are working 3 jobs to make sure that they live up to their committments.
Pile onto all of this the news that BoA may get more bail out money and it just goes beyond frustrating. They buy out 2 HUGE, diseased companies and we pay for it. It's beyond amazing.
Hi John - While huge financial institutions and other large industries (crybaby capitalists) have their hands out to you and me (the government), little effort is being made on the part of the the public, the media or any other advocates to plead the case for a reasonable solution to the current financial crisis. Here's why:
1) Free market capitalists have co-opted our democracy through lobbying and anti-consumer policies (e.g. hard-line bankruptcy legislation, out-of-control credit card interest rates, etc). They have convinced everyone that "they're too big to fail."
2) We have a Puritanical notion of what's fair or unfair. It's all about "personal responsibility." Sure, if you got yourself into financial trouble, it's your own fault. You should have known that the economy would take a plunge, you'd lose your job and your mortgage that worked two years ago doesn't today. Never mind that the lenders won't budge an inch for their "customers" until the S*** hits the fan.
3) So much for the "ownership society" that the current president preached not-so-long-ago. This turned out to be code for the financial classes to securitize and leverage our economy into bankruptcy. Why is it now morally wrong to have purchased a home (playing by the "current" rules) when our leaders told everyone this was the patriotic thing to do?.........go shopping!!!!
Indeed, what is stopping the banks from simply re-writing loans? Greed and power. Pretty simple. One of our fellow bloggers said it best: When you're winning, capitalism is great..............................
John...
All I can say is, indeed! It seems to me sometimes (not to be a conspiracy theorist) that the help is designed to further separate the have's from the have not's... A direction we seem to be going in ever faster over the past few years.
It's amazing... Infact, it's amazingly amazing!
thanks for sharing... good post...
Rene'
It seems that the best laid plans don't always do what they are suppose to do. The people who need help really bad probably shouldn't have bought in the first place and now those are the ones that are not able to get these refinances.
John,
I see exactly where you are coming from and I have written about this on several occasions.
The systemic problem with the housing market is that property values are falling as a result of the supply and demand imbalance.
I am not an advocate of moral hazards or bailouts (and you many not be either) as I think everybody needs to have the same "opportunities" and I think the best thing the government could do is to provide a real housing stimulus plan that would help absorb the excess inventory and provide price stability, something we apparently are not going to see with Obama's stimulus.
Well said John, I absolutely agree with you. Sometimes, I don't understand why the solutions to help affected homeowners always seems to be "one step removed" from helping the actual person directly.
Yes, it seems rather silly -- but then there are a lot of things out there that are silly.
John: I am glad to see you got a gold star for this post. Couldn't have expressed this sentiment better myself. There are still many families that are just one major illness away from financial despair, and there is no refi when there is no equity.
I read that Obama was trying to commit bailout funds exclusively to help homeowners rather than big business. I think it is desperately needed and agree with previous poster than many families are one major illness away from financial ruin.
John,
Especially in hard-hit areas refinance is out of reach for many who really need it. Las Vegas is one of them where many homeowners are upside down and simply can't afford to do it even if they otherwise qualify.
Another way the re-financing boom is hurting our industry is that lenders are so pre-occupied making money, they don't have time to work with first-time home buyers who need help sorting things out.
I've given up on our government. As far as I'm concerned, they're useless when it comes to looking out for the interests of the people. I'm glad we leave in a (for the most part) free country, and I'm glad that (for the most part) we're safe. But as far as any politicians actually caring about what's best for us, forget it. They only care about how much power they have.
Good morning everyone! Thanks for the great comments! Rather than address them in this section, I responded by posting another entry to my blog. Here is the link
http://activerain.com/blogsview/884461/I-Just-Asked-You-Just-Answered
Thanks again for stopping by.
Regards,
John