Some quick thoughts.
Perhaps there some magic out there I just have not seen. Unless there is a mandate in this bill to lower the principal amount, I just do not see how simply lowering the interest rate (unless it goes down to something like 2-4 percent) is going to have a major impact.
Obama unveils $75B mortgage relief plan
Here is an example. The average value at one time in my county was about $550,000. Let’s just say that it is a 30 year fixed at 7% (I’m being real nice with that percentage, because subprime with so-so credit was higher for many folks). Let’s also say that it is a 30 year fixed. Doing the numbers on that and we are at a monthly payment of $3659.16.
What we don’t know for now is how much lenders will be willing to go down on their interest rates. That will depend on a number of factors–especially credit score. So let’s say the interest rate goes from 7% to 5%. Now we are looking at a payment of $2952.52. We are now looking at a savings of $706.54. Okay.
Here are some other details that need to be considered.
Has the homeowner paid their property taxes? If not, that will be added right back to the monthly payment. Chances are if folks have fallen behind in with their mortgage payments, they are not paying their taxes. And of course if taxes are not paid, the county can take the house.
Bills, bills, bills. Will this “savings” really be enough to cover the other outstanding bills of homeowners who bought more house than what their salary can support?
Credit scores. I just mentioned this earlier. If a homeowner is behind on his mortgage, chances are that his credit is jacked up. How much additional risk will lenders be willing to take on folks with damaged credit? That is what tank the real estate market in the first place. Obama is simply multiplying it by 2.
As for me personally, we have lost about 46% in the value of our home in 1 1/2 years. So I say our neighborhood could use a little magic.
Still looking over this proposal. If there is something I am missing here, share your thoughts.
Other stuff-
“The goal: cut monthly mortgage payments to sustainable levels, defined as no more than 31 percent of a homeowners income. Funding would come from the $700 billion financial industry bailout passed by Congress last fall.”
-Are there any solid standards that banks must abide by to verify homeowners’ income?
