ANALYZING THE "MAKING HOME AFFORDABLE" INITATIVE

HOW THE BANKS ARE DEALING WITH THE
"MAKING HOME AFFORDABLE" PROGRAM with
additional commentary by USA Today.

Given the scarcity of good news overall for stressed out homeowners, let us carefully review this crumb thrown our way. Most of the Obama funds are being spent on propping up failed financial institutions and there's no "trickle-down" effect from those funds to the home owners, to be sure. Even this Making Home Affordable Program is based on the premise to financially incentivize, i.e. PAY $1,000.00 to everybody concerned to please participate in helping the embattled home owners keep their homes. The lender and the servicer get cold cash to do this, which means they get a huge chunk of the funds just to participate. For the performing loans over the five-year mark, small annual incentives actually go to the home owner as well. Not up front, though. They have to earn them with a perfect payment record.

In a nutshell, here's the deal:
1) Have a Fannie or Freddie loan under $729,750? (no sub-prime loans are eligible).
2) Are you a bona-fide owner-occupant? (no second homes or rental property).
3) Are you still CURRENT on your mortgage payments, or at worst 1 times 30 days late in the last 12 months? (There go half of the needy homeowners).
4) Then you are invited to call your loan servicer or a designated FNMA lender and apply for a refinance or loan modification before June 2010.

You will:
1) Have to prove your current PITI payments are OVER 31% of your income (that should be easy for the bulk of us).
2) Your home value has not bitten the dirt to a point where the new loan would be OVER 105% of your home's value; this includes the refinance costs. ( There go maybe a third of us).
3) Having to prove income and assets as if you were applying for a new fully documented loan may be difficult for the originally stated income applicants, small business owners and such.
(Since many homeowners are in need of help BECAUSE they have suffered a vanishment of income, this is a good one and bound to eliminate many in need).
4) You have to WAIT till your servicer gets around to your deal. (By then you may be late with a payment and ineligible).

This list of criteria effectively thins out the applicants to a trickle because:
1) This is a program made palatable for the LENDERS and not to save needy homeowners.
2) They only want you if your house makes value and you are still on top of your game, if a bit winded.
3) You will have to QUALIFY for the new loan fully, probably more stringently than for the one you now have. Those that lost serious home value and have had a real struggle financially are NOT part of this deal.
4) Basically it is helping those in the least amount of need. As is usual with bankers, you get to borrow money if you are able to demonstrate you are basically doing OK.
5) Any second mortgage holder must agree and remain in second place even if the balance goes up. (Good luck with that one!)


The Problems: Part of the problem is that in reality, many home owners have been late more than once in the last year and are struggling to make the payments. So those that actually are having problems are NOT ELIGIBLE. Home values have many home owners upside down beyond the 105% mark and those are the ones that really need the help and are most likely to lose their homes. Given the steep declines in values anyone with an original loan of 80% or above will probably not qualify, since the shrunken current value will be out of this tiny box.
The bank gets paid by the government to write a viable deal based on their Old School criteria, with possibly a lower rate for up to five years as a concession. No reduction of principal of course, leaving most home owners as upside down loan-to-value wise as before. Nit-picky stepped up rates over five years in case of a lower than market initial rate, or a balloon payment take more piranha nibbles out of these deals. In case you are coming out of an Option Arm into the accelerated rate term of your loan your rate will definitely go up, no question. And still they want you to be grateful.
If you DO manage to qualify, the papers you sign will put you ON PROBATION for three months and if you are not perfect in your payment record, you lose the deal. Imagine, if you were put on a trial period when you get a regular new mortgage - and after three months they decide to call the loan if you did not pay exactly like clockwork? You would lose your house and any equity in it. Well basically, this is what will happen here, too. They'll call the loan due.

The View From The Pit: President Obama tries to buy the financial institution's cooperation with more money that they deserve, but the image I get is him standing at the tall iron gates of Scrooge McDuck's Estate trying to advocate him into leniency towards his poor tenants who are losing their homes because of earlier sanctioned, impossible-to-meet loan terms and destructive economic forces that are as unchangeable for the homeowners as any force of nature. The harvest has been a bust, no grain was brought in. Yet anyone without grain will not get a chance to beg for their homes. "GAME OVER" for debtors.

I would not want to be in President Barack Obama's shoes.
Going to the Scrooge McDuck Estate trying to buy leniency for his harried constituents without a shotgun loaded for Bear is a thankless task. Why is the President trying to romance loan modifications out of the financial institutions, anyway? Give that poor man some knee pads. In this emergency, should he not have some additional powers? Privately I ask myself, is there not a better way to bail out our nation, than to just give billions to the financial institutions who mis-managed the devalued financial instruments to begin with? Why can't we have a democratic instead of a capitalist solution here? Why are these billions of dollars not being used to catch up or pay down the homeowners loans commensurate with the equity loss incurred and cut out the banking middleman? Or find some other way to help the home owner in the cross-hairs directly. Too simple, I guess. Bankers run the world, and banker will get paid. We are in for a rough ride, Citizens.
Too late for that now anyway, the bail-out funds have been given to the bankers.

Good luck, Home Owners, with running the qualification gauntlet and scraping together some of the crumbs of the MAKING HOMES AFFORDABLE program.

Many will go hungry because only the name is a mouthful.