Freeze Fuss

So what’s the fuss about this new program?  What does it mean to you?  Probably nothing.  The requirements are tight and are likely to help very few nationwide; estimated at anywhere from 100,000 to 600,000 home owners.  It’s not going to have any impact on the market; however, it will get a lucky few out of the fire.

Initially the proposal created a great deal of buzz.  This could be the solution to the overabundance of available real estate.  It could rescue those about to become homeless.  It could be the Super-Man that we’ve been waiting for.  Then the air was let out of the balloon.

(The following is summarized from Kathleen Penders SF Chronicle article.)

It will help subprime borrowers mostly current on their adjustable subprime mortgage today, but could not afford it when their interest rate adjusts and cannot refinance into a new loan.

It will not help:
People who already behind in their payments.
Borrowers with good credit scores.
Homeowners who have substantial equity in their homes.

To qualify for the rate freeze:
You must have taken out a subprime adjustable-rate mortgage between Jan. 1, 2005, and July 31, 2007.

You must be facing your first interest-rate adjustment between Jan. 1, 2008, and July 31, 2010, and the payment increase must be at least 10 percent.

Your mortgage must have been sold into a securitized pool of loans.

You must be living in the home.

Your FICO credit score must be less than 660 and less than 10 percent higher than it was when you took out the loan.

Your first mortgage alone must be for more than 97 percent of your home’s value.

People who meet these criteria will be eligible for an automatic or “fast-track” five-year freeze. People who meet some but not all might be eligible for a freeze on a case-by-case basis.

I can only imagine the chaos this is going to cause.  Lenders are utterly overwhelmed processing requests for short sales, short payoffs, foreclosures, and taking back properties to resell as bank owned.

There’s been a huge controversy all over the web with regard to who’s to blame for this mortgage mess.  Is it the buyers?  No.  People were advised by professionals that this was a no-fail way to the American dream of home ownership.  Is it the mortgage brokers?  No.  They were following the guidelines set forth by the lenders who lend.  Is it the appraisers?  No.  They were following the comparable trail from one house to the next.  Is it the realtors?  No. The sale price of a house is determined by what a willing buyer will pay and a willing seller will accept.  Is it the lenders?  Hmmm.  Could be.  Those loan requirements were incredibly slack.  100% financing.  Teaser rates.  Low FICO scores.  No documents required.  Four option payment plans.

Who you blame depends on your perspective and how you were raised or learned to manage your own finances.

Make no mistake, the problems faced by the American people are not caused by the unscrupulous mortgage brokers or the rising price of oil.  These are symptoms of an economic disease caused by a spendthrift Congress enabled by loose monetary policy.

–Ron Paul

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RE/MAX Star Properties
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Redwood Shores, CA 94065

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