A new government assistance program called HOPE for Homeowners was unveiled Oct. 1.
The program is designed to help distressed homeowners stay in their property. It allows homeowners the opportunity to refinance out of a high interest mortgage or an adjustable rate mortgage into a lower, fixed rate solution.
This comes on the heels of an announcement by Bank of America, which now owns Countrywide, that it plans to enact a home retention program that will “systematically modify troubled mortgages for over 400,000 Countrywide” loans. Beginning Dec. 1, the program will coordinate interest rate reductions that will keep payments within 34 percent of the borrower's income, and even reduce principal owed on adjustable rate mortgages in order to “restore lost equity for certain borrowers.”
Both programs aim to keep people in their homes and stabilize a faltering housing market.
Bank of America's plan is expected to have a positive impact. The company's plan, designed around principle and payment reduction, is powerful and has fewer strings attached than the government's plan.
Hope for Homeowners has several major caveats that will limit its use. The program entitles the Federal Housing Administration, or FHA, and possibly the lender who refinances your loan, to a minimum of 50 percent of the future appreciation of your property.
Within the first year, they take 100 percent of the home's appreciation and 10 percent less each year to a minimum of 50 percent. For example, if you refinance through this program and your $300,000 home is worth $450,000 in 10 years, you will only get to keep $75,000, instead of $150,000.
Also, the program calls for an upfront 3 percent mortgage insurance premium and 1.5 percent annual mortgage insurance premium on the outstanding mortgage balance. The annual premium is the equivalent of a 7.5 percent loan, if the average rate is 6 percent.
Even if the added costs are bearable, most buyers in our local market expect future appreciation and factor that into their buying decision. Sharing future appreciation is a significant penalty for refinancing under the Hope program.
Since the passing of the Mortgage Forgiveness Debt Relief Act, homeowners may choose the short-term consequences of a short-sale and buy back into the market in two or three years once their credit is repaired. Homeowners considering a short-sale should seek counsel from a qualified tax professional.
Local short-sale market
A short-sale occurs when a homeowner is forced to sell his or her property, but owes more than the property is worth. If the homeowner cannot make up the difference of what is owed, he or she negotiates with the lender to forgive the difference in debt.
As home values decline, more homeowners are finding themselves owing more than their property is worth. More than 20 percent of Carlsbad homes for sale require lender approval; there were 84 single family homes and 58 condos for sale in mid-October.
Since short-sale homes are listed and sold at below-market prices, a greater number of short-sale homes typically points to lower future prices.
In mid-October, Oceanside had 1,127 homes and condos for sale in its city limits, and almost half required court or lender approval. San Marcos, Vista and Escondido are experiencing similar distress.
Only within the last year has Carlsbad experienced a noticeable number of short-sales. Oceanside saw short-sales in early 2005 when a 1,800-square-foot, three bedroom home sold for $546,000. Today, the same house would sell for around $368,000.
The government and lender programs are expected to lessen the number of short-sale homes and stabilize prices over the next year.
First-time homebuyers
If you wonder who is buying property in the current market, it is first-time homebuyers. The government is awarding first-time homebuyers, who purchase their primary residence on or after April 9, 2008 and before July 1, 2009, up to a $7,500 tax credit for buying a home.
New homebuyers also can take advantage of government-backed FHA loans of up to $697,500 that offer competitive rates and only require 3 percent down. Since property values have declined from their peaks, a three bedroom, 2,000-square-foot home in Oceanside that rents for around $2,200 a month only costs about $2,400 a month to own.
(Based on a $340,000 sales price, 3 percent down payment and a 6.4 percent 30-year fixed rate loan, including principle, interest, property taxes and insurance. This does not take into account the added benefit of mortgage and property tax deductions.)
The program is designed to help distressed homeowners stay in their property. It allows homeowners the opportunity to refinance out of a high interest mortgage or an adjustable rate mortgage into a lower, fixed rate solution.
This comes on the heels of an announcement by Bank of America, which now owns Countrywide, that it plans to enact a home retention program that will “systematically modify troubled mortgages for over 400,000 Countrywide” loans. Beginning Dec. 1, the program will coordinate interest rate reductions that will keep payments within 34 percent of the borrower's income, and even reduce principal owed on adjustable rate mortgages in order to “restore lost equity for certain borrowers.”
Both programs aim to keep people in their homes and stabilize a faltering housing market.
Bank of America's plan is expected to have a positive impact. The company's plan, designed around principle and payment reduction, is powerful and has fewer strings attached than the government's plan.
Hope for Homeowners has several major caveats that will limit its use. The program entitles the Federal Housing Administration, or FHA, and possibly the lender who refinances your loan, to a minimum of 50 percent of the future appreciation of your property.
Within the first year, they take 100 percent of the home's appreciation and 10 percent less each year to a minimum of 50 percent. For example, if you refinance through this program and your $300,000 home is worth $450,000 in 10 years, you will only get to keep $75,000, instead of $150,000.
Also, the program calls for an upfront 3 percent mortgage insurance premium and 1.5 percent annual mortgage insurance premium on the outstanding mortgage balance. The annual premium is the equivalent of a 7.5 percent loan, if the average rate is 6 percent.
Even if the added costs are bearable, most buyers in our local market expect future appreciation and factor that into their buying decision. Sharing future appreciation is a significant penalty for refinancing under the Hope program.
Since the passing of the Mortgage Forgiveness Debt Relief Act, homeowners may choose the short-term consequences of a short-sale and buy back into the market in two or three years once their credit is repaired. Homeowners considering a short-sale should seek counsel from a qualified tax professional.
Local short-sale market
A short-sale occurs when a homeowner is forced to sell his or her property, but owes more than the property is worth. If the homeowner cannot make up the difference of what is owed, he or she negotiates with the lender to forgive the difference in debt.
As home values decline, more homeowners are finding themselves owing more than their property is worth. More than 20 percent of Carlsbad homes for sale require lender approval; there were 84 single family homes and 58 condos for sale in mid-October.
Since short-sale homes are listed and sold at below-market prices, a greater number of short-sale homes typically points to lower future prices.
In mid-October, Oceanside had 1,127 homes and condos for sale in its city limits, and almost half required court or lender approval. San Marcos, Vista and Escondido are experiencing similar distress.
Only within the last year has Carlsbad experienced a noticeable number of short-sales. Oceanside saw short-sales in early 2005 when a 1,800-square-foot, three bedroom home sold for $546,000. Today, the same house would sell for around $368,000.
The government and lender programs are expected to lessen the number of short-sale homes and stabilize prices over the next year.
First-time homebuyers
If you wonder who is buying property in the current market, it is first-time homebuyers. The government is awarding first-time homebuyers, who purchase their primary residence on or after April 9, 2008 and before July 1, 2009, up to a $7,500 tax credit for buying a home.
New homebuyers also can take advantage of government-backed FHA loans of up to $697,500 that offer competitive rates and only require 3 percent down. Since property values have declined from their peaks, a three bedroom, 2,000-square-foot home in Oceanside that rents for around $2,200 a month only costs about $2,400 a month to own.
(Based on a $340,000 sales price, 3 percent down payment and a 6.4 percent 30-year fixed rate loan, including principle, interest, property taxes and insurance. This does not take into account the added benefit of mortgage and property tax deductions.)