Look at New Programs for Home Buyers- There May Be a Deal for You
by Jaimie M. Salamanader
Headlines have recently concentrated on the $700billion bailout program, but how many homeowners are aware that a bill passed last year to help them became effective on October 1, 2008? A new Program has been developed that will help homeowners with too high interest rates be able to afford their mortgages by allowing a reset of the rates.
There were a lot of mortgages issued over the last years, when credit was very loose, that were at low adjustable interest rates just to get the borrower able to buy a home, but when rates went up, those homeowners could no longer afford their mortgages.
The one big issue with the Hope for Homeowners bill is that it leaves it to the lender to determine whether the borrower can be moved into a different loan structure. They may be willing to do so if the only other solution to renegotiating is to let the house go into foreclosure. Logically, it would seem better to lose some interest than the entire loan principal.
This is the concept behind the program: Many borrowers used ARMs in order to take advantage of temporary advantageous interest rates. But if the rate went up, the homeowner would want to see about renegotiating the loan. Today, however, more and more homes have little equity with which to pay off the old loan.
For example, if you bought a home for $250,000, and your loan balance is still $215,000, but the home is now only worth $190,000 because the housing market has fallen. This kind of reverse equity in the loan gives the homeowner no option but to reset, at whatever rate.
Hope for Homeowners will guarantee the repayment of the new loan to the lender, with one big caveat Liberty Hill mortgage for Real Estate Agents. The guarantee cannot be for greater than 90% of the houses value. So now the lender has to decide to accept the guarantee for only $171,000, in the example we use, and therefore a loss of $30,000. The bank, however, would have a guarantee that the $171,000 would be paid mortgage broker in calgary. The decision the bank has to make is whether it is better to accept the loss and have a long term guarantee. It is up to the lender to decide. Many still appear to prefer foreclosure rather than to take the present loss.
This may seem strange, but accounting may be the reason for this, since a property, even if it is in foreclosure, still shows as a balance on the books of the lender, but a loss would have be reflected immediately. Sad to say, lenders can be short term thinkers and would rather put off the pain instead of showing a loss on the balance sheet.
There are those, however, for whom the loan may work, if there has not been a big reduction in the value of their homes. In the case where the home has a good market value relative to the outstanding debt, the lender will not have to accept as great a loss, or perhaps none at all.