Should Obama slash debt of struggling homeowners?

Today President Barack Obama signed a $787 billion bill to boost the sagging economy, but some housing watchers are more interested to hear what he has to say Wednesday, when he is expected to provide details of a $50 billion proposal to help homeowners avoid foreclosure.

Some experts say the only way to dramatically reduce foreclosures is for government to use taxpayer funds to reduce the amount struggling homeowners owe to the bank.

Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., which also tracks O.C., said borrowers who owe more than their home is worth face a “psychological barrier” to keeping up their payments.

Up to now, loan modification programs have temporarily reduced monthly payments for borrowers while keeping the total debt intact. Kyser said those modifications have a high rate of failure. Indeed, govenment data shows many loans modified in the first quarter of 2008 went back into default within five to six months.

However, the idea of giving people a break on their debt strikes some as a “moral hazard” — people are being rewarded for bad behavior (buying more home than they could afford) and will do so again unless they are punished.

But Kyser said homeowners who miss payments suffer a loss in their credit scores and so will pay more in interest the next time they borrower money to buy a home or car, if they can get credit at all.

“They will be punished sooner or later,” Kyser said.

What do you think?

How Obama would change bankruptcy law for mortgages

In all the hoopla yesterday over President Barack Obama’s plan to provide up to $75 billion in mortgage aid, there wasn’t a lot of attention to a line in his strategic plan about giving bankruptcy judges the power to modify home loans, including a reduction in the balance owed to current market value of the property. Such a change requires a vote by Congress. Sounds Good but lets see how that goes once congress gets a hold of it..

National Mortgage News has a few more details:

President Barack Obama is endorsing changes to the bankruptcy code that will allow judges to modify mortgages that were made in the “past few years” and don’t exceed the $417,000 conforming loan limit, according to the president’s foreclosure prevention plan. “This provision will apply only to existing mortgages under the Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts,” the summary says. The bankruptcy legislation being proposed by the president is designed to help families that have “run out of other options.” But they must certify that they tried to get a loan modification and worked with a servicer before filing for bankruptcy. The legislation also provides authority for the Federal Housing Administration and the Department of Veterans Affairs to pay partial claims in the event of a bankruptcy or loan modification “so the holders of loans guaranteed by FHA and VA are not disadvantaged.”
February 19th, 2009, 8:07 am . posted by Mathew Padilla, Reporter

Fannie Mae Loosen Underwriting on Mortgage Refinance

This is a real PLUS ++++ Tho help everyone who needs to Refinance

By:Bill Rice | February 06, 2009
Fannie Mae has posted new guidelines for approving homeowners attempting to lower their loan payments with a mortgage refinance.
In a notice posted to lenders yesterday, Fannie Mae announced that they will drop some credit score qualifications, income documentation standards, and even waive the need for appraisals in some scenarios. Changes apply only to those loans owned or guaranteed by Fannie Mae.
Fannie Mae currently holds more than 40 percent of the $12 trillion US residential mortgages and is seeking to streamline the "back-log" of homeowners refinancing. According to Bloomberg reports, Fannie Mae spokesman Brian Faith indicated that this is an adjustment to allow homeowners to take advantage of near-record low interest rates.
Security analysts are concerned about potential harm to mortgage bond investors and insurers. Significant concern surrounds discussions of no-appraisal refinancing--concerns that borrowers with less than 20 percent home equity can forgo mortgage insurance. However, Fannie Mae anticipates using automated valuation models to screen appraisal waivers.
Fannie Mae's changes will allow homeowners to refinance up to 80 percent of the current value of their home with credit scores even below its current 580 minimum. The program will also lower income documentation requirements to a single current pay stub.
Fannie Mae Refi Plus program will expedite a majority of mortgage refinance applications that have surged on record low mortgage rates. This refinancing process will leverage Fannie Mae's automated risk assessment systems to validate market values and credit risk without traditional appraisals, inspections, and income documentation.
The streamlined Fannie Mae program, DU Refi Plus, will begin April 4, 2009. Statements from Faith estimate that this program will potentially aid millions of homeowners take advantage of record low mortgage rate to secure a lower payment