Bush has launched his new plan for homeowners at risk of loosing their homes. The main problem is that is helps so few that the impact will be negligible at best. Most homeowners who are at risk are faced with two issues, one the payment and two the fact that they are often upside down on their homes.   Most people will not be able to refinance their homes under this program because they exceed the 90 percent loan to value guidelines. In California that number is further frustrated by the fact that most loans are in the jumbo range and exceed the $550,440 limit.

"The Bush Administration announced the launch of the so-called “Hope for Homeowners” program today aimed at helping more at-risk borrowers stay in their homes.

The program, initially approved back in July, will allow borrowers struggling to keep up with monthly mortgage payments refinance into sustainable 30-year fixed-rate mortgages, so long as the loan amount doesn’t exceed $550,440.

It is only available for owner-occupied properties who do not own any other properties, such as second homes or investment properties, and the new mortgage must not exceed 90 percent loan-to-value of the new appraised value.

Additionally, the borrower must be able to prove that their current mortgage is unaffordable, and as of March 2008, their total monthly mortgage payment must have exceeded 31 percent of their gross monthly income.

In order to be eligible, the existing mortgage must have been originated on or before January 1, 2008, and six payments must have been already been made.

Borrowers convicted of fraud in the past 10 years, or those who have intentionally defaulted on their debts or provided materially false information to obtain their mortgage will not be able to utilize the program.

The holder of the existing mortgage must agree to waive all prepayment penalties and late fees, and any subordinate lenders must release their outstanding liens.

The borrower must also agree to share any equity and future appreciation with the FHA and/or the original lien holders.

The program will serve as a type of loss mitigation option for lenders looking to recoup losses on underwater borrowers, though it’s unclear how many homeowners will be interested in salvaging such a loss instead of just starting over.

The Hope for Homeowners program will be available until September 30, 2011, and complements HUD’s other homeowner outreach program, FHAsecure. "

Bottom line this will do little but give Bush some badly needed good press.

http://www.thetruthaboutmortgage.com/hope-for-homeowners-program-launched

On August 8, 2008 I wrote about the eminent takeover of Fannie and Freddie Mac by the Government.   Well it seems like it is finally here.  It seems that something major will be released before the weekend.  New information being released just after both companies experience a major drop in their stock suggests that the plan is all but complete.  Once the Government takes the companies over they will have unlimited supplies of cash to originate new loans.  This will come courtesy of you the "Tax Payer". 

This creates a major shift in how our loans function.  When the Government takes both companies over it will be the Tax Payer who will carry the gain or lose from all mortgage loans serviced by the two companies.  The immediate future will be very bleak.  Foreclosure are still scheduled to rise regardless what the industry tell you.  We will not see the bottom till 3rd Quarter of 2009 or as late as 2nd Quarter of 2010.  After 2010 we will return to normal real estate growth of 5.9%, which was typical prior to the recent boom.  

What really worries me is that for the next two to three years the Government will incur losses from both companies that will be in the hundreds of billions.  Where will that money come from.  It will probably be added to the ever growing deficit.  We are deferring a problem that our kids and grandkids will have to deal with.  The Government of today is operating much like the typical American consumer.  Imagine the Government Deficit as a credit card or Mortgage which they keep using or refinancing until at some point there is no more credit available.  

Our next President  whether Republican or Democrat will enter a no win situation.  The history of the next office will be marred by the financial crisis we face for the next 3-7 years.

For some more information see news.yahoo.com/s/ap/20080906/ap_on_bi_ge/mortgage_giants_crisis

Fannie Mae and Freddie Mac have both shown dramatic losses.  Combined they control $5 Trillion dollars of the US mortgage market.  In comparison the US deficit is 9.5 Trillion.  Now keep in mind that it would be impossible for all 5 Trillion dollars worth of loans to go bad at the same time.   However, when you consider that this week Fannie Mae showed a 2.3 Billion dollar loss which is a large impact on their cash reserves it give you a better picture of what is going on.  Fannie Mae and Freddie Mac where both given more lenient cash reserve requirements as a part of the recent changes that Congress and the President gave both companies in an effort to help control the Sub-Prime mess.  This reduction in the cash reserves is a formula for disaster.  Imagine Bears and Sterns just prior to the Fed take over.  You have a company who could not withstand any demands on its liquidity and yet you allow them to lower their cash requirements?  If you want another example then look at what just happened to IndyMac. 

Paulson got a blank check from Congress and instead of investing it he literally told Fannie and Freddie to go spend.  He will feel the repercussions of this action in the near future when the next wave of foreclosure makes the impact during 2009 and 2010.  He will need to pull out that check book and empty the bank account and then turn to the Tax Payer again for more money.  When all said and done I think that the true mess of the current bank crisis will cost around 500 Billion. 

Housing starts are at record lows.  Building permits fell 1.3% from the previous month showing a level not seen since March 1991.  Builder confidence is at a 22 year low based on the NAHB Housing Market Index (HMI) which dropped to 18.  

The economy itself is also facing a recession according to Greenspan.  I personally feel that we were in a recession last quarter and possibly facing a long term recession or dare I say a depression.  I say this because the real estate market and Wall street are the too largest investment vehicles that investors have.  Usually when Wall street is doing well investors will pull money out of the real estate market to invest into stocks and vice versa.  Right now the Dow Jones suffering a 20% decline since October of last year when it was at 14,164 and currently closing on Friday at 11,346.  And the real estate market is showing a record number of foreclosures that may top 1,000,000.  This is forcing most investors to park their money in cash accounts or government bonds until the smoke clears.  This will only prolong the recession because of the lack of confidence and lack of cash infusion into either arena.  Now you also need to add that interest rates are heading up, qualifying for a home is harder, and inflation is on the horizon, and you get the perfect storm for the United States.  This may compare to the Great Depression of the 30’s.

The silver lining is that I see the bottom of the market to be mid or late part of 2009.  2010 and 2011 will be time to shop and look for great investment opportunities.  1-4 Family units that actually debt service themselves and even show positive cash flow.  If you buy right now make sure you bargain hunt and don’t be disappointed if you equity disappears in the first 2-3 years.  Eventually is will come back and if you are looking for long term investments then this is the market for you.  Keep a close eye on interest rates and keep a close eye for auctions and bank owned properties.