Loans Learning Center

I’ve received a tremendous amount of calls lately, with regards to the Homeowner Affordability and Stability Plan, which is in the works as part of a broad plan to get the economy and housing industry back on track through President Barack Obama, The U.S. Department of the Treasury and Housing and Urban Development’s broad plan. The details of the plan are still being worked out, but the plan will help “up to 7-9 million families restructure or refinance their mortgage to avoid foreclosure”, according to the United States Department of Treasury’s website. An Executive Summary of the Homeowner Affordability and Stability Plan can be found on our website at:

http://www.oakvalleymortgage.com/ExecutiveSummary.pdf

Support Under the Homeowner Affordability and Stability Plan: Three Cases

The U.S. Department of Treasury’s website goes on to lay out three case scenarios, which represent millions of families across the United States and how the plan would ultimately affect their situation.

Family A: Access to Refinancing

• In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

• Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000.
  • Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.

• Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.

Family B: Access to Refinancing

• In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

• Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000.
  • Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.

• Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $4,000.

Family C: Eligible for Homeowner Stability Initiative

• In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker – Mom & Pop Mortgage – sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.

Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.

• • Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house.
  • Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.
• Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.

Homeowner Stability Initiative: How the Program Works for the Lender, Government and Borrower

• First, Investment Bank (working through a mortgage servicer) reduces the interest rate so that the Family C’s monthly debt-to-income ratio drops from 42% to 38%. This means that Investment Bank must reduce the interest rate from 7.50% to 6.38%, bringing down Family C’s monthly payment from $1,538 to $1,387.

• Second, the government and Investment Bank share the cost of further reducing the interest rate so that the Family C’s monthly debt-to-income level is lowered to 31%. Any dollar the bank spends is matched by the government. At this stage, Family C’s interest rate is reduced from 6.41% to 4.43%. In total, Family C’s monthly payment has fallen from $1,538 to $1,132.
• If Family C remains current on their payments, they will receive incentive payments up to $1,000 a year, or $5,000 over five years, that would go towards reducing the principal they owe. Additionally, the mortgage servicer can earn an up-front incentive fee of $1,000, plus up to $1,000 per year in “Pay for Success” fees for three years, so long as Family C remains current.

Note: This information comes directly off the United States Department of the Treasury’s website. In adherence to the www.treas.gov website privacy policy and legal notices, “No copyright may be claimed for any work on this web site that was created or maintained by Federal employee in the course of their duties. Images and text appearing on this web site may be freely copied. Credit is requested. If copyrighted material appears on the site, or is reached through a link on this site, the copyright holder must be consulted before the material may be reproduced.”

Where are rates at today Scott?

30 Year Conforming Rates are hovering around 5%, charging 1 point origination and standard closing costs.

15 Year Conforming Rates are hovering around 4.75%, charging 1 point origination and standard closing costs.

Scott Gormley

Broker/Owner

Oak Valley Mortgage

Direct: 530-361-6202

Email: Scott@OakValleyMortgage.com

Website: www.OakValleyMortgage.com