Obama’s new housing refinance plan

President Obama announced on Wednesday yet another attempt at helping financially beleaguered homeowners.

The proposal would allow more borrowers to take advantage of record-low interest rates and lower their monthly mortgage payments, reports The Washington Post’s David Nakamura and Brady Dennis.

This time around, homeowners whose mortgages are not federally backed may be eligible. As Nakamura and Dennis report, a key part of the plan would allow qualified homeowners to refinance their mortgages at current historically low interest rates. Unlike earlier proposals, the new refinance measure would cover not only home loans guaranteed by federal mortgage giants Fannie Mae and Freddie Mac, but also those owned by private investors, according to senior administration officials.

The criticism was quick.

“The Republican National Committee mocked Obama’s plan Wednesday, predicting that it would get tossed into the ‘alphabet soup’ of housing proposals the administration has offered over three years that have ‘failed to keep millions of Americans in their homes,’” Nakamura and Dennis wrote.

I’ve heard from homeowners and housing advocates about the problems with previous programs. People mostly complain that lenders haven’t been willing to participate in the government programs or that the modifications they offer are of little help. Borrowers and advocates complain that lenders or servicers take too long to make decisions and repeatedly lose applicants’ paperwork.

I certainly hope this program will have a greater impact than the earlier efforts.

But what do you think? This week’s Color of Money question: What do you think of Obama’s new plan to help homeowners? Send your responses to colorofmoney@washpost.com. Be sure to include your full name, city and state. Put “New Housing Refinance Plan” in the subject line.

The Real Culprit in the Housing Crisis

Who is responsible for creating the mortgage mess that wreaked havoc in the housing industry?

Fingers should be pointing at the private mortgage market, says Mark Zandi, chief economist at Moody’s Analytics and a columnist for The Washington Post’s Real Estate section.

Many have put most of the blame for the housing crisis on the two giant housing-finance institutions, Fannie Mae and Freddie Mac. But when you look at the numbers, that blame is misplaced, Zandi says.

Between 2004 and 2007, private lenders originated three-quarters of all subprime and alt-A mortgage loans. These were loans to financially fragile homeowners with credit scores under 660, well below the U.S. average, which is closer to 700. But only one-fourth of such loans were originated by government agencies, including Fannie, Freddie and the Federal Housing Administration.

“The biggest culprits in the housing fiasco came from the private sector, and more specifically from a mortgage industry that was out of control,” Zandi wrote. “These included lenders who originated home loans, investment bankers who packaged them into securities, rating agencies that misjudged these securities, and global investors who bought them without much, if any, study.”

Fannie and Freddie did play a significant part in the financial panic, Zandi says.

“As financial conditions began to weaken in 2007 and the private mortgage industry pulled back, the agencies partially filled the void. This was their chance to get back in the game,” writes Zandi.

But, as Zandi concludes, “despite Fannie and Freddie’s role in the panic, it is wrong to blame them for creating it; that distinction belongs rightly to the private mortgage market.”

Text Chat Today

Let’s talk.

Join me at noon ET for an online text chat with Carl Richards, author of “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money,” which was the Color of Money book club selection for January. Here’s the review of his book.

Be sure to send your questions in early or read the archives later.

Mortgage Help for the Jobless

Unemployed borrowers whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac may be eligible for up to 12 months of forbearance, reports real estate columnist Kenneth R. Harney.

Forbearance is a process in which a lender or mortgage servicing company suspends or reduces required monthly payments for a specific length of time. Forbearance does not mean a forgiveness or reduction of the principal balance on the mortgage. “Think of it instead as a timeout,” Harney says. “Whatever amounts go uncollected during the forbearance period must eventually be repaid.

On loans they own or have securitized, Fannie and Freddie are now directing servicers to forbear when a borrower can show that he or she has lost a job, Harney reports.

Servicers can grant six months of reduced or suspended payments without getting special permission. If unemployment continues beyond six months and the lender or servicer believes the borrower needs more time, it can ask Fannie or Freddie for approval to extend the forbearance. During any unemployment forbearance period under the rule revision, borrowers will not be subject to foreclosure, even if they had fallen behind on payments before the forbearance began.

Fannie Mae’s policy becomes mandatory for all loan servicers on March 1. Freddie Mac’s policy took effect this week.

Here are some of the program’s terms for eligibility:

— You must have a financial hardship due to unemployment.

— The property must be your principal residence.

— Second homes, investment properties and properties that are vacant, condemned or abandoned are ineligible.

Here are the links for more details about eligibility for unemployment forbearance:

— Freddie Mac

Fannie Mae

Class Warfare

President Obama’s recent State of the Union speech addressed an array of issues from the economic disparity between the wealthy and middle class to the affordability of a college education.

“Higher education can’t be a luxury,” Obama said. “It’s an economic imperative that every family in America should be able to afford.”

For last week’s Color of Money questions, I asked: “What economic proposals do you hope get passed?”

“I would like to see incentives developed to encourage manufacturing in America and disincentives for companies to ship manufacturing jobs overseas,” wrote Albert Tindall of Grapevine, Tex. “Partner with community colleges to educate our people with the skills needed to support demands of high tech manufacturing.”

Others want to see more to make education affordable.

“Education to me is the big one,” said Adam Herbst of River Edge, N.J. “Everyone agrees that you need a good education in order to be a good tax-paying citizen in the future. So let’s get together and decide what skills are going to be needed to compete in the future, both on a national and personal level, and design schools so that this can be done.”

Tia Lewis contributed to this e-letter.

You are welcome to e-mail comments and questions to singletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

 
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