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Will Obama’s Housing Plan Have An Impact In Benicia-Vallejo & Environs?
April 12th, 2009 categories: Foreclosures / Short Sales, Loans / Financing, The Economy
It’s been a little more than a month since President Obama announced his Making Home Affordable housing plan. 
Unfortunately, in many parts of the country, including right here in Benicia, Vallejo and much of the rest of the Golden State, the plan likely won’t have much of an impact.
And, judging by what many of my colleagues in other parts of the state or country are saying, the program may be one of those that sounds good but has little impact in some of those areas as well.
In case you missed it, the Making Home Affordable Plan is supposed to help up to 9 million U.S. homeowners refinance or modify their loans in an effort to prevent responsible owner-occupants from instead becoming foreclosure casualties.
The program targets two different types of borrowers:
1. Those who have been unable to refinance and take advantage of today’s low interest rates due to their home’s drop in value; and,
2. Those who are either behind on their payments or struggling to stay current.
Part I — Refinance Assistance
The first program allows those who owe up to 105% more than their home’s current market value the opportunity to refinance into a lower-cost loan. Unfortunately, here in Solano and Contra Costa Counties as well as pretty much the rest of the Bay Area, most of the homes that are under-water have lost so much equity that they’re worth far less the 105% maximum that the Making Home Affordable plan allows.
In many areas, home values have dropped by 50 percent or more. But unless your current market value is no more than 5% below what you owe, you don’t qualify for the Making Home Affordable program.
Part 2 — Loan Modifications
The second program provides incentives for lenders to modify the loans of those currently having a tough time making ends meet. If you qualify, the program will provide government funds to help your lender reduce your interest rate so that the payment on your first mortgage is no more than 31% of your gross monthly income. It also fixes that interest rate for the next five years.
Unfortunately, though the government is offering incentives to the lender (as well as to the borrower to keep their payments current), the program is entirely voluntary, which means that many lenders may give it lip service but never really push hard to modify these loans.
For, even though the government will defray some of the lender’s loan-mod costs, the lender will still have to absorb at least half of the loss (and probably more).
The Lender’s On The Hook First
The way the program is set up, the lender must first absorb the entire cost of reducing the loan from wherever it is presently to a rate that also reduces the borrower’s debt-to-income ratio to 38%. The lender and the government then share the cost of reducing the rate further so that the borrower’s DTI ratio is lowered to 31%.
And only your principal residence is eligible for the program, which excludes those who are upside-down on an investment property.
Moreover, only first mortgages are eligible for modification, so the program may offer little help to those with a first and a second mortgage. And that effectively eliminates a large percentage of under-water homeowners in Benicia, Vallejo and the rest of our market area.
The same is true in most other parts of the U.S. where prices have declined substantially. A straw poll of some of my real estate colleagues in other markets:
- Daniel Bates, a Realtor in McClellanville, SC says that ” I have seen little in the economic stimulus plan that will help us other than simply improving the state of the economy.”
- Mike Rockwood, a Realtor in who specializes in the Los Angeles’ South Bay region says that his area “is a little bit pricey, so we’re a little disappointed that the assistance was really limited to Fannie Mae and Freddie Mac, because most of my clients in this area hold jumbo mortgages. Our housing prices have declined a lot more than the 5% that the president’s plan lends assistance to. Our prices have fallen anywhere from 10-45%…so we’re kind of disappointed that we haven’t gotten more assistance for those groups.”
- Mark Madsen, a Las Vegas loan officer says “the Obama plan won’t help our city for these reasons: 1) most Vegas homeowners can’t qualify full doc for the refi or loan mod plan; 2) property values are down 65% in some areas; 3) 1 in every 10 homes in this city is heading down the foreclosure path; and 4) most people don’t want anything unless it involves a principal reduction.”
- According to Geordie Romer, an agent from Leavenworth, WA, “Since I work in a second home market (Leavenworth WA) this has very different consequences for us. The Obama plan created a wrinkle for homeowners of vacation homes that decide to turn their vacation home into their permanent residence. If you then sell that permanent residence, you cannot exclude all the profits from the sale (up to $500,000 for couples) like you can normally. A home that was formally a vacation home will have tax liability for those years starting in 2009 that it was used as a vacation home.”
- One area where the plan looks to make some inroads is Northwest Arkansas, where real estate agent Ben Roberts says the program should be be helpful “because most home loans in our area are conforming loans through one of these institutions and are eligible for refinancing under these new rules. Even if you owe more than your home is currently worth, you should now be able to refinance into a 15 or 30 year, low fixed-rate loan at a historically low rate and cut hundreds and thousands of dollars off your mortgage payments.”
For more details on the Making Home Affordable program, click here.
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