Much analysis that will take place, but this is a quick first look. The size of the program is 300 billion, helping as many as 400,000 homes. The program will last five years and then phase out. Given that we expect 3 million homes to foreclose this year its only a partial.
Lenders: This is not a bail out for lenders or investors. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.
Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance. If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. What's more, homeowners can only retain equity gains based on a sliding scale.
No lenders or investors will be compelled to participate. The only way to find out if your lender will join the program is to call.
Fannie and Freddie Raise the Limits
Areas with median house prices that are higher than the regular conforming limit will now be able to borrow at 150% of the conforming loan limit, or $625,000.
- Only owner-occupants who are unable to afford their mortgage payments are eligible for the program.
- No investors or investor properties will qualify.
- Mortgage debt to income ratio: Must greater than 31 percent as of March 1, 2008
- Loans must be 30-year, fixed rate loans.
The size of the new FHA-insured loan will be lesser of the amount the borrower can afford to repay, as determined by the current affordability requirements of FHA; or, 90% of the current value of the home.
Equity & Appreciation Sharing:
The borrower must share the newly-created equity and future appreciation equally with FHA. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter.
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