Another Hole in the Obama Foreclosure Plan
As we wrote today, there’s a real hope among housing experts that President Barack Obama’s new plan to tackle the foreclosure crisis will be wonderfully successful, but the voluntary nature of the program has left more than a few doubts lingering.
And here’s another reason to worry: The component of the plan that expands the refinancing option for struggling, but not delinquent, homeowners excludes those whose outstanding mortgages exceed 105 percent of their homes’ value.
Here’s a longer explanation. Currently, homeowners with mortgages valued below 80 percent of the home’s worth can — if the loans are backed by Fannie Mae and Freddie Mac — refinance those loans to take advantage of currently low interest rates. But there’s a ban on refinancing if the mortgage exceeds the 80 percent debt-to-value threshold. The Obama housing plan doesn’t remove that ban, it just bumps the ceiling up to 105-percent.
So if you owe $340,000 on your $500,000 home that’s now worth $380,000, you’re newly eligible for refinancing. (Debt-to-value = 90 percent). But if you owe $340,000 on your $500,000 home that’s now worth $320,000, you’re not eligible for refinancing. (Debt-to-value = 106 percent.)
The New York Times today translates the 105 percent ceiling into practical terms:
That means many homeowners in areas like Florida, Arizona and Nevada, where home prices have plunged the most, will not be eligible.
Put another way, the hardest hit areas will get the least help. Can someone explain that, please?