Head over heels, but not in a good way, is how to describe the mortgage debt with which many homeowners are strapped. The government's Home Affordable Refinance Program attempted to address this back in March when they began allowing some homeowners to refinance their current mortgages for up to 105% of the value of their homes. In other words, if the home is worth $100,000, then the homeowner can get a refinance up to $105,000.
This limit of 105% reflected the disconnect in Washington with the real world. Unfortunately, the homeowners that are truly at risk of foreclosure owe significantly more that 105% of the value of their home in mortgage debt. Five months later the government has tried to address the issue by raising the limit to 125%. While this will certainly help some folks, it will not help the great number of homeowners in Arizona, California, Nevada, and Florida that are considerably upside down with their mortgage debt (by more than 25%).
The best suggestion to resolve this came from John Courson at the Mortgage Bankers Association when the program was first announced back in March. He recommended that there be no limits on the loan to value. These refinances are only for loans that are currently owned by Fannie Mae and Freddie Mac. And Fannie and Freddie will own the new loans that are created by the refinances. Since the federal government owns Fannie and Freddie, we the tax payers own these mortgages.
These homeowners that are upside down are potential foreclosures which will cost the government (aka we the taxpayers) mucho dinero. Why not let these homeowners refinance to a lower payment and avoid the foreclosure and the cost that goes with it regardless of the loan to value ratio. There is already a precendent for this with FHA and VA refinances. Since the government already guarantees those loans they just want to put the homeowner in a better financial position. How is Fannie & Freddie any different today from FHA & VA? The answer is, they are not any different from an ownership and accountability standpoint.
Lift the loan to value restriction and more homeowners will be helped. If not, then more loan modifications will need to be done. For homeowners that need a loan modification and don't want to pay thousands of dollars to an attorney or loan modification company, visit www.eModifyMyLoan.com. The site helps struggling homeowners in need of a modification create a complete and well-organized package to deliver to their lender and will help expedite the modification process.