Maybe you ARE being bailed out.

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Politics — generally a topic not to be entered in to lightly with neighbors, friends or family, probably not clients and customers either.  I think there is a saying about religion and politics, isn’t there?  We should probably add “bailout” to that saying and make it a list of three.

Hate it or love it (hate it or tolerate it; hate it or accept it), the US Government is spending billions and billions of dollars to try and get the economy moving again.  And while I do hate the idea of corporate executives getting millions of dollars in congratulatory “thanks for running the company into the ground at the expense of the American public,” I actually do think that the new Housing Stimulus Plan has some merit.

And unless you believe the screaming trader on the floor of the Chicago Mercantile complaining about paying someones mortgage (I refuse to give him the extra air-time of a YouTube insert in to my blog), you might want to think about some of the positives of the new plan.  Chances are you are being bailed out and you may not even know it. 

The new plan (more details to be rolled out in April) will allow perfect-paying borrowers to refinance their mortgages to take advantage of today’s historically low rates.  A lot of people who should and would like to refinance their mortgages (and save $150 to $250+ per month) can’t because of one of two issues.  1 — Their house won’t appraise high enough to allow them to refinance; or 2 — Their income is not high enough to allow them to qualify for a new loan to refinance (either because of loss of income, reduction of income, an increase in monthly debt, or an increase in payment due to a rate adjustment, etc.).  In either of the two cases, these borrowers are currently continuing to make their mortgage payments, but are in jeopardy of NOT making their payments.

In essence, the new Housing Plan will allow borrowers with perfect payment histories to refinance their mortgages and lower their payments despite the value of their house or their current debt to income.  The plan will only allow loan-to-values up to 105% — borrowers who are more upside down than that will not be eligible and allows for lenders to modify payments and interest rates based on a benchmark debt-to-income percentage). 

So why are some people so mad about it?  I am not really sure, but let me tell you why I think it’s a good thing.

While you might not get a check in the mail signed by President Obama, the implications of the stimulus plan could save you thousands and thousands of dollars.  By helping your neighbor keep his or her house and by keeping your neighbor’s house from going in to foreclosure, the plan is helping to keep the value of your house from falling any further.  Don’t believe me?  Look at some of the houses already listed for sale in your neighborhood.  Would you rather that person to be still living in the house and making their payments with a little help from the US Treasury (to allow them to get today’s low mortgage rates) or would you rather the house go up for sale for $20, $30, $50 or $100,000 less than where you might hope it would be?  If the house does sell for $50,000 less than the market value . . . that IS the new market value, and at least for the time being, you just lost about $50,000.  Fannie Mae and Freddie Mac will no longer discount “distressed sales” and since these sales have to be included in appraisals, the climb to get values up the dollars lost will be a slow one (now that house has sold for $50,000 less, the NEXT person who tries to buy a similar house in the neighborhood is going to have an appraisal problem when they try to get financing on anything for sale much more than the “new” market value).

So the next time you hear someone complaining about not wanting to pay for someones mortgage, let them know that if they have refinanced in the last 60 days, they were bailed-out by being able to get 4.75% on a 30 year fixed rate loan (US Treasury induced) and remind them that the bailout might just help them be able to sell their house one day in the distant future without having to write a big check at closing.  If you hear someone complaining about it and they don’t have a house, have them call me, there is bailout money for them too ($8,000 free money for first time homebuyers).

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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