News

02/18/2009 - New Housing Plan to Stabilize the Decline in Housing Prices

The plan has several objectives.  The main thrust is to help two types of homeowners.  The first is the homeowner who's income isn't high enough to keep up with their monthly payments.  This could be because of the type of loan they have, perhaps an ARM that adjusted up, or their income level has changed.

The second type of homeowner it intends on helping is the homeowner who now owes more than their house is worth.

The key announced components of the Homeowner Affordability and Stability Plan are:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

More details on the plan will be release on or around March 4, 2009.  Some of the details we have learned at this time include the following:

· Facilitating refinances of mortgages controlled or serviced by the GSEs or government, even with LTVs over 80%
· Government sharing of costs to lower borrower mortgage payments to 31% of income
· Incentives for servicers to modify
· Increasing preferred stock purchases in Fannie and Freddie to $200 billion each from $100 billion
· Increasing Fannie and Freddie balance sheets to $900 billion from $850 billion
· Standardized modification guidelines to be pushed industry-wide
· Allowing “judicial modifications” also known as cram-downs via bankruptcy

The Treasury has provided several publications to help explain this new program.

Executive Summary

Fact Sheet

Consumer QA

Housing Example Sheet

The Treasury plan may involve buying additional mortgage securities.  The more demand there is for mortgage securities means rates will go down.  If the Treasury drives up the price of mortgage bonds, the rates go down.  (See Bond Prices and Yields)

The question we are asked is "Will rates continue to go down?"  It's hard to say.  There are many economic factors to consider.  There certainly is quite of bit of bad news, which causes downward pressure on rates.  But rates are at almost historic lows - there is some debate how much lower they can go. 

Our advice is to set a rate target that makes financial sense to you, and when it is available, pull the trigger and lock your Rate.  You can consider a No Point or No Closing Cost Refinance to reduce your risk.  The rate 'may' be slightly higher, but it also allows you to save money without cost.

Consider signing up for our Rate Watch - which can email our rates to you when you choose.  Or ask us to provide a custom rate quote for your situation.