We are now entering the final quarter of 2008 and it has been another difficult year for financial institutions. Many potential buyers are putting their plans for buying a home on hold “to see what happens". Right now, there are more rumors flying around the housing market than there are facts. It is a good idea to take the time to address and understand the mortgage meltdown and to investigate some ways this may benefit homeowners that may be in financial trouble.
By now, everyone has heard about the Federal Government bailing out Fannie Mae, Freddie Mac and AIG insurance. The Fed's reasoning for this bail-out is that Fannie Mae and Freddie Mac were quasi-government companies. What this means is that the Federal Government has always implied that they would step in if there was ever an issue with these publicly owned companies. The government has had oversight into their financial dealings and reserve positions, but have always let them run their own businesses. If the Feds allowed Fannie Mae and Freddie Mac to go bankrupt, over night, it would have closed the financial markets for an indefinite period of time. Now that they have stepped in, there is more confidence that the financial systems will be secure. Now, for AIG, they have over 100,000 employees and are a major player in the insurance industry. AIG received a two year loan from the Federal Government for a 79.9% stake in the company and have left the insurance industry functioning normally.
So, what is the Fed doing for you?
Starting Oct.1, 2008 there is a new program called “ Hope for Homeowners.” This program is part of a new housing bill: HR -3221. If you owe more than your home is worth, and can not refinance or afford your mortgage payment, this program may work for you. You must certify that you have not intentionally defaulted on any mortgage payments and that you have a debt to income ratio over 31% as of March 2008. This is a voluntary program for the mortgage holder, so you will need to contact the servicing company of your mortgage to see if they will write off some of your principle on your mortgage. Then you can get a new loan of 90% of the new appraised value using the FHA loan. This would have to be offered through the same servicing company you currently have. Please note that a second mortgage would have to be fully written off if one is in place currently. This could create issues if the current first and second mortgages are serviced by separate lenders. On the up side, part of the HR-3221 bill insures that there will be no tax issue if the debt is forgiven. Always talk with a tax consultant before making any decisions.
Interest rates have dropped! A 30 year fixed rate is now at 5.875%. FHA & VA loans can be used on all purchase and refinance transactions. Credit scores and credit requirements vary depending on compensating factors: no bankruptcies within the last 2 years, no foreclosures within the last 4 years and a twelve month rental or mortgage history with no late payments are required. Verified income and assets known as “Full Doc” loan programs only. Property must be owner occupied and (L.T.V.) Loan to Value and (D.T.I.) Debt to Income ratio restrictions do apply.
Even though home loans are more difficult to get, it is a great time to buy. There are still some 100% loans available such as VA, CalPers or USDA Rural. Remember, the housing market is a never ending cycle. Home values will eventually go up as will interest rates. Talk with a lender (or two) to see what you can qualify for and consult with a licensed, experienced and knowledgeable realtor.