Quote:
Originally Posted by Jorge Camargo
For the life of me i cannot understand this bill. Explain the loan mod scenario and so forth. To me the banks have to agree to the loss before it can be refinanced correct?
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Correct. The banks have to write down the balance to 90% of the current appraised value. So say the home is worth $200,000 today... the bank would need to accept $180,000 regardless of what was owed. If the home owner had a loan for $300,000 on it (I/O purchased at an inflated price say), then the bank would need to accept losing $120,000 in the transaction. Its much the same way banks will accept a short sale.
On top of that, the banks also need to pay 3% of the loan amount to FHA as an upfront insurance fee. The buyer still needs to pay the traditional FHA mortgage insurance as well, but the 3% fee is a special one on these loans.
So that already makes it pretty hard in many cases. A bank has to really expect that this loan is a hopeless cause to take the 90% of the appraised value -3% FHA fee.
Add to that the owner needs to qualify based on credit, income, assets and the rest... its going to be tough going. Sure if the home has lost a lot of value they might now finally be able to afford the home on a full-doc, fixed rate mortgage... but I still think that many buyers at this point will have credit problems and have depleted their assets and not qualify.
Only time will tell, but so far the last program (FHA Secure) designed to help homeowners refinance to FHA has not helped that many owners.
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