Details are vital in president’s mortgage relief proposal

Last week we talked about the apparent winners and losers in the president’s plan to help

homeowners. Now we have the details we’ve been waiting for — information on who gets what and how lenders will be encouraged to participate.

One of the early surprises was the scope of the refinancing plan. In case you haven’t been paying

• Attention, this part of the program is aimed at responsible homeowners who would like to refinance to today’s low interest rates but are prevented from doing so due to falling home values.
  

We had originally been told that only “conforming” loans would qualify for this departure from conventional “loan to value” guidelines. In other words, the benefit would only be available to borrowers whose loan balance was less than the Fannie Mae maximum loan amount of $417,000.

I was particularly pleased to see that the details of the plan allow refinancing up to a current balance of $729,750. This part of the plan makes good sense, and here’s why:

• The program is only available to owner-occupants who are current on their existing loans. Borrowers in this group are statistically least likely to default.
  
• The program is only available for loans which are owned or guaranteed by Fannie Mae or Freddie Mac. Since the government is already on the hook for these loans, it makes sense to make them affordable, thus slowing down the foreclosure rate.
  

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Foreclosure Filings in U.S. Jump 30%, Thwart Prevention Effort

March 12 (Bloomberg) -- Foreclosure filings in the U.S. climbed 30 percent in February from a year earlier as the worsening economy thwarted efforts by the government and lenders to prevent homeowners from losing property,RealtyTrac Inc. said.A total of 290,631 homes received a default or auction notice or were seized by the lender, the Irvine, California-based seller of default data said in a statement today. It was the third-highest monthly total in RealtyTrac records dating to 2005. 

February filings increased 6 percent from January.“More people have lost their incomes or are underwater on their mortgages, so a new housing plan won’t change those facts by itself,” Barry Eichengreen, professor of economics at the University of California, Berkeley, said in an interview.The U.S. housing crisis is deepening as President Barack Obama attempts a $275 billion rescue to help borrowers with sinking home values or unaffordable loans. 

Declining prices sapped $2.4 trillion in value from the nation’s residential market last year, according to First American CoreLogic. Prices in 20 U.S. cities have fallen every month since January 2007, the S&P/Case Shiller index shows.Rising unemployment also is making it harder for homeowners to keep up with payments. 

The U.S. jobless rate rose to 8.1 percent in February, the highest in more than 25 years, according to the Labor Department.Wait and SeeSome of the top U.S. lenders own as many as 700,000 foreclosed homes they have yet to offer for sale, said Rick Sharga, executive vice president for marketing for RealtyTrac.The banks may be waiting to see how U.S. government plans develop before selling the properties, Sharga said. 

The lenders and government-owned Fannie Mae and Freddie Mac, the two biggest U.S. mortgage financing companies, have already extended temporary foreclosure moratoriums.The combined percentage of loans in foreclosure or at least one payment past due in the fourth quarter was 11.18 percent, the highest on record, according to the Mortgage Bankers Association in Washington. 

The percentage of loans 60 days past due and 90 days or more late also were at record levels.“Many elements are lined up to suggest we’ll have more foreclosure activity in the future, maybe an all-time high,” Sharga said.

Obama introduced a plan Feb. 18 to use $75 billion of public funds to entice lenders to modify or refinance home loans, stem foreclosures and rescue delinquent homeowners. The president also said the Treasury Department would provide as much as $200 billion in additional backing for Fannie Mae and Freddie Mac to free up funding for new mortgages.

Re-Financing PlanTo qualify for a refinanced loan, applicants will have to fully document incomewith pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to Treasury.One in 440 U.S. housing units received a foreclosure filing last month, andNevada, Arizona and California had the highest foreclosure rates, RealtyTrac said.

Idaho, Illinois and Oregon joined the list of top 10 states with the highest rates, a sign that rising unemployment is now pushing defaults, Sharga said. Florida, Michigan, Georgia and Ohio were also in the top 10.

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