Look at New Programs for Home Purchasers- There May Be a Deal for You
by Jaimie M. Bergman
Even though all of the news has recently been about the big federal bailout of the financial sector, are homeowners aware that there was a rescue plan passed to help them? The program is called Help for Homeowners and it is designed to help some homeowners with variable rate loans to negotiate fixed rate mortgages.
Since many mortgages were granted with teaser rates that made the mortgage payment affordable, when the rates reset to normal or even higher than normal rates, some borrowers will not be able to afford their monthly payments.
The one big issue with the Hope for Homeowners bill is that it is up to the lender to determine whether the borrower will be moved into a different loan structure. It would seem logical that they would want to participate if the alternative would be to foreclose on the house. The bank’s loss would be much less in these cases.
Here is how the program is supposed to work. Formerly, borrowers would use ARMs to take advantage of some decreases in the interest rate. Once rates increased, a borrower would attempt to renegotiate at the best rate. Now, with housing prices coming down, many times there is no longer the possibility to pay off the loan because there is no equity in the house.
Let’s say a homeowner took out a mortgage for $250,000 and still had a loan balance of $215,000 when the ARM reset; his property, however, is now only worth $190,000 edmonton mortgage rates. Since so many people have no or even negative equity in their property, they cannot renegotiate a new loan.
The Hope for Homeowners bill will guarantee the repayment of the loan to the lender. The kick in the program is that the new loan not be for greater than 90% of the assessed value. This means, in our above example, that the homeowner could only borrow $171,000, and the bank would have to take a loss of over $30,000 alberta mortgages. On the other side, the lender is guaranteed that he will eventually get the $171,000 in case of loan default. Better to take some loss in order to assure the repayment of the larger balance? Each bank has different ideas on this. It seems a lot of themchoose not to participate and continue to risk foreclosures.
Accounting rules may be responsible for this reluctance, since foreclosed properties remain on the lender’s books as an asset, while a write down like this is an immediate loss. Sad to say, lenders can be short term thinkers and would rather delay the pain instead of showing a loss on the balance sheet.
But that should not prevent any homeowner from making the inquiry and taking a chance on renegotiating better terms on a smaller mortgage. In the case where the property has a good market value relative to the outstanding debt, the bank will not have to accept as great a loss, or perhaps none at all.
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