Will Bush’s Foreclosure Relief Plan Affect You?

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Will Bush’s Foreclosure Relief Plan Affect You?

December 6th, 2007 categories: Real Estate Finance, Real Estate News

President Bush announced his Foreclosure Relief Plan which will allow borrowers who have subprime mortgages with interest rates that will increase sometime in 2008 to lock in affordable interest rates for up to 5 years. Borrowers must be current on their mortgage payments and have no mortgage lates greater than 60 days in the past twelve months.

While many feel that this is a step in the right direction to help borrowers deal with high adjustable rate mortgage payments, the question I have is “what about the pre-payment penalties”?

I have not heard anyone address pre-payment penalties. I think by far this is one of the biggest challenges faced by borrowers. Many people have huge penalties ($5,000, $10,000 even $20,000 or more) if they refinance, thereby preventing them from doing so. By eliminating pre-payments alone, many more borrowers would be able to refinance and take advantage of today’s low fixed rates.

In all likelihood, Bush’s plan will only help a small percentage of homeowners with sub prime mortgages. However, of the those that do qualify they may receive much needed relief from high mortgage payments in an expedited fashion.

Of concern is how financial markets may react to the idea of changing terms of existing mortgages. It may not be well received by traders and could cause cooling in financial markets.

The reality is, many people are in the unfortunate and very uncomfortable position of facing mortgages with adjustable rates that are about to change with corresponding payments that they will not be able to afford.

What can you do if your mortgage payment is about to adjust?

1) Call your local mortgage broker.

If you qualify, refinancing onto a new mortgage is your best option as it will have the lowest rate and lowest payments. You can lock in on a 30 year fixed mortgage under 6.0% for loan amounts of $417,000 or less. (Today’s price is 5.625% @ 1 point or 6.0% @ 0 points).

A local broker knows what is going on in your neighborhood specifically. A good mortgage broker has an existing relationship with an appraiser who can advise on the current value of your home and will know which lender is offering the lowest rates for your particular situation.

Lock in a fixed rate mortgage if you are planning on staying in your home for a while.

2) Contact your current lender.

If you find that your home value has dropped and/or you do not qualify under current guidelines to refinance, then call your current lender before you are late on a mortgage payment.

Many lenders will extend the terms or re-write an existing mortgage for borrowers. In general, a typical rate extension by lenders is 2 to 3 years. Certainly not as attractive as refinancing to a 30 year fixed mortgage but for many this may be enough to keep them in their home and paying their mortgage payments on time.

3) Bush’s Foreclosure Relief Plan.

For those that qualify, this plan does offer a solution to high interest rates and huge mortgage payments. We will have to see how the plan is implemented, but any relief is welcome to borrowers facing this situation.

If your mortgage is scheduled to adjust, be proactive. Don’t wait until it adjusts to find out what options are available to you. Do everything you can to avoid a late payment if possible. A late mortgage payment can drop a person’s credit scores dramatically. Ironically, this causes the borrowers who need the most help to be unable to qualify for the best rates and programs. The lower your credit score the less options you have and the higher the interest rate you will pay.

If you can refinance onto a fixed rate mortgage do so today. The potential for lower rates in the future is offset by the possibility of higher rates and a continued decline in home prices. Foreclosures for the 3rd quarter reached an all time high. Contact a professional who can help you avoid becoming another victim of the credit crisis. Even if you have already been late on your mortgage payment, you may still have some options.

Lysa Catlin
CMC Finance, Inc.
(858) 456-3000

This entry was posted on Thursday, December 6th, 2007 at 3:56 pm and is filed under Real Estate Finance, Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Denny Oh December 6th, 2007 at 4:01 pm
Great post Lysa. I have been dealing with a lot of clients who are in this position and it can be very stressful. This is definitely a time where people should be contacting the agents and lenders, to seek professional advice.
The Best on The Vine, week of December 2 December 7th, 2007 at 11:03 am
[...] Bush. There is lots of coverage throughout the blogosphere, and several Tomatoes have chimed in. Denny Oh at SanDiegoh, Jeanie at Twin City Real Estate Chat, and Mary at Beltway Ramblings all give unique insight to [...]
The Broker June 19th, 2009 at 10:32 pm
Very nice. Thanks for this.
Denny Oh June 22nd, 2009 at 11:46 am
Thanks for reading.