California Moratorium

Effective this past Monday, June 15, a 90 day moratorium on foreclosures went into effect. While it does give jeopardized homeowners some additional hope of avoiding a foreclosure, it is not as finite a solution as the name might sound. What it does do is require lenders to make additional efforts at loan modifications before they can foreclose during the next 90 days. If, after the modifications have been attempted without success, the lenders can then proceed with the foreclosure sale. But they do have to maintain proof of their pre-foreclosure modification efforts.

Bad News From the Senate

Yesterday, even though a Democratic-led Senate is in power, the Senate defeated a bill that would have allowed Bankruptcy judges order potential foreclosures into bankruptcy. Had it passed, this bill would have helped avoid many foreclosures. Bank supporters were able to convince enough Senators that doing this would drastically raise interest rates and harm the chances of a recovery for the economy.

A Breather in California

With the stroke of a pen, Governor Schwartzennegger yesterday signed into law a moratorium on all foreclosures on loans made to homeowners in a specific five year period. If the mortgage is a first mortgage made between January 1, 2003 and the same date in 2008, the new law requires a moratorium on any foreclosure action for 90 days. The law is subject to a few exemptions, most notably that a lender is exempt if it already has in place a loan modification program that includes principal deferral, interest rate reductions for at least five years or extended loan terms. Further, the revised loans cannot exceed 38% of the borrower's income, which is a bit looser than the recently enacted Federal limit of 31%. Needless to say, many banks oppose the new legislation.

Obama's Stop Foreclosure Plan

Just announced!!Obama has put forth his plan to relieve the foreclosure situation in the country. It won't save everyone. Even the President clearly stated that yesterday on announcing it. But it definitely WILL help a huge number of struggling homeowners to stay in their homes. THE HIGHLIGHTS: Loan Modifications: Under what is called the Homeowner Affordability & Stability Plan, the government, starting March 4, has a program to encourage lenders to make loan mods. Using up to $75 Billion, it will be available to homeowners who owe more than 31% of their gross monthly income on their mortgage.Money will come from TARP funds created last fall. Further requirements: the home must be the owner's principal residence; and the modified loan cannot exceed current loan limit standards of Fannie Mae or Freddie Mac.
Refinanced Fixed Rate Loans: allows qualified borrowers making their payments on time to refi into more comfortable fixed rate loans of 15 or 30 years.Loans under this aspect of the plan MUST be conforming loans, i.e., principal amounts not above $417,000.
Cram Downs: Allowing Federal judges to help borrowers avoid foreclosures by forcibly altering existing mortgage terms as a part of bankruptcy decision.Before this can be allowed, Congress must pass a law permitting it as it would alter existing Bankruptcy law.
Fannie Mae/Freddie Mac: The government will double the amount of loans it will absorb if they go bad, the new total being $200 Billion.

There's a lot to digest here, and it's not, as noted above, going to help everybody, but it certainly will help many.

And, if I may editorialize for a moment, it will give some breathing space to the common man or woman trying to save their home, when circumstances beyond their control have placed that home in jeopardy. Not something to complain about, any more than certain Wall Street types managed to not complain when their supporters were bailed out last fall.

Foreclosure Moratoriums?

As announced today, some large lenders are providing a suspension of foreclosures for three weeks as part of Federal loan support programs to the banks. BofA,Citibank,Goldman Sachs and Wells Fargo have agreed to some form of this moratorium. Citi & BofA have said they'll do so as long as the delay doesn't exceed three weeks, while the other two have indicated they already include suspension of foreclosure action as part of their overall aggressive loss mitigation activity, "where appropriate".

The Next Stage

Well, the folks at Wells Fargo just announced a new opportunity in its loan modification program, particularly if you're one of the 478,000 customers of Wachovia, whom they recently took over.If you're facing possible foreclosure or are already in the process that finishes with your home being foreclosed, you can get an extension from Wells to February 28 to work on a "new solution most appropriate for your circumstances". This could be extending the loan term to 40 years, cutting interest rates, or even a reduction in the amount of the loan principal.Call Wells NOW while you have the extra month and change to possibly avoid losing your home to foreclosure!

More Good Ideas

Well, at least there are plenty of people thinking of ways to ease the housing/foreclosure crisis. This past week, representatives of the National Association of Homebuilders were in Washington, DC pressing for passage of a bill they wrote that would, if passed, help straighten out the housing market. Titled "Fix Housing First", it would have the federal government provide fixed rate mortgages at rates not seen for over fifty years.

The bill would have the feds provide federally-subsidized mortgages of 30 years at a fixed interest rate of 2.99% on all home purchases, regardless if the home were new or a resale. The purchase and its related loan would have to close by June 30 of this year. If it did not close by then, the fixed rate would be a still spectacularly low 3.99% for the same loan, as long as it closed by the end of the year.

I don't think these rates are likely under a federal subsidy due to the sheer amount of money the government would have to front. However, had you asked me last June about some of the bailout numbers currently bouncing around, I also would have been very skeptical then too. So, it will all come down to what the new administration, working with Congress decides is a reasonable number, given the severity of the economy in general and the housing market in particular.