Fannie and Freddie to allow 125% LTV REFI's?

[taught_me_patience]

Wow... we really are turning into a banana republic.


Obama’s Mortgage Refinancing Program May Be Expanded (Update1)
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By Dawn Kopecki and Jody Shenn

June 19 (Bloomberg) -- Fannie Mae and Freddie Mac may get permission to begin refinancing mortgages with loan-to-value ratios above 105 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.

“We’re actively considering how to structure a program that makes sense over 105 percent,” Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent “is a number” that’s on the table, though “not necessarily the number we’re going to end up with.”


http://bloomberg.com/apps/news?pid=20601087&sid=al5p85mlike0

[mtnester]

1. My bank does not, ever, loan more than 90% LTV of a home

and on empty land, it is even less.

They have had to sell ONE home...one...through auction/foreclosure

[SoCalDem]

2. Gotta go back to 25% down. Housing prices have dropped

and will drop some more. Until buyers have some "skin in the game", we'll always have housing bubbles.

I'd like to see a cap on housing interest, a minimum 25% down, and NO refi for the first 10 years of a loan.

Housing has to go back to being about a place to live...not an ATM..

[taught_me_patience]

3. Agree

Skin in the game is so important. That's why this 125% LTV plan will end in disaster.

[On the Road]

5. I Believe This Particular Program

is directed at homeowners who have negative equity. It is the only way homeowners can refinance, in some cases to move away from an ARM whose intial period has expired. Since it is described as an anti-foreclosure program, you can assume the purpose is to keep people in their homes and able to pay their mortgage.

[SoCalDem]

8. Regardless of the aim of the plan, it's only prolonging the inevitable

MANY people "bought" houses they could NEVER "afford", and staying IN it, only keeps them in a house they cannot afford, and throws more money away, in the form of fees and add-ons..

There IS a time, when people need to say, "we screwed up", bail out, and start over. Over the long haul of a 30 yr mortgage, houses will be upside-down from time to time, but it's never been so bad as it is how, and many of these folks are in the first few years of home-buying.

Many were beguiled by the idea of home-ownership, and were sold a bill of goods. The only blessing, is that they did NOT lose thousands of their own money. The time to walk away, is while they are young enough to rebuild their credit, and try again when they can truly "afford" to buy a house. Then they need to UNDER-buy, fix it up and STAY PUT until they have equity.

[On the Road]

9. How Do You Know It's Inevitable?

Many of these people could afford the initial rate on their ARMs but not the higher payments once the teaser rates expired -- they can be twice what the intitial payment was. There's no reason a lot of people can't make it through with refinancing to a fixed rate.

OK, they were overoptimistic about their future finances. But it's about stabilizing the whole market, and enabling that kind of refinancing. The 105% or 125% limit prevents supporting hopeless cases where the owner is so far underwater that the chances of pulling through are low.

I don't expect banks to be magnanimous and forgive borrower mistakes. I do expect the Federal government to regulate, set limits, and initiate programs like this if it's a good idea.

[ljm2002]

10. There's theory...

...then there's reality.

Many people bought houses they could afford, except that they did not realize it was an ARM. Or they figured they could refinance before the ARM kicked in. Then the housing bubble burst and put them under water. Now they owe lots of money at relatively high interest rates, and could use some relief.

Over 50% of homes in the entire state of Nevada are under water right now. Now I do realize that the housing market goes up and down and it is foolish to suppose that house values can only go up. But I don't really think that over half of the home buyers in the state should be assumed to be fools who bought more house than they could afford. I think when the percentage is this high, you really have to acknowledge there is more going on. And as a matter of public policy it makes sense to look at ways to help, always within sensible parameters.

Not everyone who is underwater is young, making $24K/yr and living in a $500,000 McMansion that they never could have afforded.

[zipplewrath]

4. Without defending it

A not insignificant problem is that people who are only a few years into a mortgage, have lost so much value in the price of the home that it is worth less than they owe on it. They can't get loans, at lower rates, to help them manage their problems. No one wants to do fianacing for 125%, but for REFI's it is one solution. Of course so are cram downs. The problem with the 125% stuff would be that the people who least need it would probably be the ones most likely to go get them.

[SlipperySlope]

6. It's a trap. It would convert non-recourse into recourse.

In most states, first mortgages taken out to purchase a home are non-recourse loans. In other words, they can take your house, but they can't go after you personally for anything more you owe after that.

In all states, refinance loans are recourse loans. You will be personally liable for anything beyond what they get when they repossess your house.

So, say you are in a house that is worth $80k but has a $125k first mortgage still on it from when you bought it. Right now you can walk away, let them take the house, and then you are done.

But, if you refinance, and then fall behind, first they take your house, then they can come after you for the next $45k.

It's a trap.

[taught_me_patience]

7. Yep I see that

good analysis.