At the end of last month, Congress moved closer to passing legislation that is similar to HR 5830 or to the Federal Housing Finance Regulatory Reform Act (“the plan”).
In case you missed my previous article, Congress is quickly moving to pump billions of dollars into mortgage markets! This action is more than likely to happen in the next several months so we must consider the economic implications for mortgage and residential real estate markets.
The “fiscal stimulus” is geared toward helping home owners refinance out of their troubled loans. The plan’s goal is to pump $300 billion dollars into the mortgage industry. This will be done through what is called the HOPE Loan-Guarantee Program.
The HOPE Loan Guarantee Program allows a home owner to refinance into a new loan with a private lender with a FHA guarantee. The only catch is that it has to be an owner-occupied principal residence. Under the new program, the participating mortgage holders must agree to a loan refinancing arrangement that brings the loan-to-value (LTV) ratio on the new FHA-insured loan to no greater than 90 percent of the property’s current appraised value. In addition, the existing mortgage holder would pay some portion of the new origination fees.
Here are my thoughts on how it will affect mortgage markets and ultimately the residential real estate markets. The affect of this type of fiscal stimulus will filter through the mortgage markets and very well could cause a refinance boom. In addition, it should stabilize home values; this is because people will no longer walk away from their homes. The biggest problem with the current real estate market is that foreclosures are causing excess inventory in the market which ultimately causes prices to fall. All in all, markets should respond positively to this much-needed fiscal stimulus.
Fortunately for the residential real estate and mortgage markets, Congress is headed toward passing a much needed provision. This provision will not only help home owners, but also will provide a much needed boost to our economy. Given the current recession, we should applaud Congress for stepping in to help markets.
Cliff Pape
Home-Buddies