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President Releases Details of Refinance Plan for Underwater Homeowners Not Backed by Fannie and Freddie

February 3, 2012

Vincent Howard and our San Bernardino County foreclosure defense lawyers wrote recently about the president's announcement of a new refinance program. On Feb. 2, President Obama released more details of that program, as the Los Angeles Times reported. Making a political move in an election year, the president proposed to expand the Home Affordable Refinance Program to a wider group of homeowners. The program already helped people who were slightly underwater and might not otherwise qualify for a refinance, but it was limited to those whose loans are backed by Fannie Mae and Freddie Mac. Under the new proposal, homeowners whose loans are owned by any lender or investor would qualify. The plan also includes a "homeowner's bill of rights," a set of federal standards intended to fight abuses and deceit by lenders.

According to a breakdown by Time magazine, borrowers would need to have a credit score of at least 580 to qualify. Their loans could be no larger than the FHA loan limits for the area; in southern California, this is $729,750. The residence must be a single-family home occupied by its owner -- likely an attempt to exclude investment homes -- and the borrowers must owe no more than 140 percent of the loan's value. Thus, for a home now valued at $100,000, the borrowers could not owe more than $140,000. And borrowers must have missed no payments in the last six months and only one payment in the six months before. Those who are further underwater than 140 percent may still be able to qualify, but only if their lenders are willing to write off some principal. The loans would likely be shorter-term loans that allow quicker equity-building in exchange for higher monthly payments.

The Federal Housing Administration would back the refinanced loans, with funding from a "financial crisis responsibility fee" of 0.15 percent on some liabilities of larger financial institutions. This is a proposal Obama has made before, and it has already been decried by Congressional Republicans as a tax on banks that could hurt the economy. Republicans also questioned whether it's wise for the FHA to take on more risk. Some financial observers saw irony in the fact that the lending standards for these refinances would be lower than they currently are in the market; borrowers would need to have a job, but not to submit tax returns or have the house reappraised. Unemployed borrowers might even qualify after submitting more detailed information. Political observers expected that the plan wouldn't get through Congress and suggested that it was proposed more as an election issue than a serious plan.

That's unfortunate, because Vincent Howard and our Anaheim foreclosure defense attorneys would be delighted to see more help for homeowners stuck in homes they can't refinance or sell. Thanks to the housing downturn, people who bought their homes at higher points in the market now routinely find themselves underwater; roughly half of all homeowners in the Inland Empire are believed to owe more than their homes are worth. Even when they've done everything "right" by conventional standards, they have no home equity. This is disappointing when the borrowers plan to stay put, but it's devastating for people seeking to move for a job or refinance to get some relief from high interest rates. Vincent Howard and our Murrieta foreclosure defense lawyers routinely represent people put into this position by predatory or otherwise unfair lending practices.

If you're facing foreclosure and you're tired of excuses and delays from your loan servicer, call Howard Law, P.C., instead. You can reach us through our website or at 1-800-872-5925 toll-free.

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