WASHINGTON — Problems in the nation's housing market are enormously complex, and the modest initiatives announced Friday by the Obama administration won't cover everyone in every situation, but it should help.
"I'm optimistic. I don't think anything is a silver bullet; I don't think there is one. What I do like about this is it was creative," said Faith Schwartz, who heads HOPE Now, an industry coalition formed during the Bush administration to address the housing crisis.
There are numerous details not yet worked out, but here are answers to the most immediate "what does it mean to me" questions.
Q: I'm unemployed. I'll get a reduced mortgage payment, right?
A: Not necessarily. You must initiate this process with your lender or mortgage servicer. You cannot be more than 90 days late on payments. You have to provide proof that you are collecting government unemployment benefits, and your home cannot be worth more than $729,000. If you meet those conditions and others for the broader mortgage modification effort, lenders and servicers who participate in the government's Home Affordable Mortgage Program must offer you three months of help, and perhaps up to six months.
Q: Would the lender or servicer just let me skip payments?
A: No, the lender or servicer would try to get you to a payment equal to 31 percent of your pre-tax income. If your only source of income right now is an unemployment check, your mortgage payment would temporarily be 31 percent of that.
Q: I'm underwater on my mortgage and unable to refinance. How does this help me?
A: If you owe more than your home is now worth, you may qualify for help, but it still depends on finding a lender willing to refinance you. The administration will subsidize some of this refinancing and give some non-financial incentives to lenders to take a chance on you.
Q: How will it work?
A: Details are pending, but in rough terms the idea is to have enough principal reduced to get you down to where you owe $115,000 on a home now valued at $100,000. That's to say that you would owe about 15 percent more than what your home is now worth. If a lender can refinance that, and then place the loan into a Federal Housing Administration program, you're in luck. But again, this depends on the willingness of lenders to refinance a mortgage, which has been a challenge, especially since in many markets there are huge numbers of bank-owned homes, and it's not clear that home prices have stopped falling.
Q: I have a second mortgage too, is that a problem?
A: Second mortgages have been a huge obstacle in modifying mortgages, since these second-lien holders have had little incentive to play ball. The new plan doubles the 10 cents on the dollar they were offered previously by the government to extinguish the second mortgage and allow a modification. Will 20 cents on the dollar be enough? It remains to be seen, but the administration is hoping the rising number of foreclosures is enough of an incentive, since a foreclosed home causes even larger losses for those subordinated to the primary mortgage.
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