Today Congress passed a bill today to return FHA loan limits to 125% of local area median home prices. The FHA can now back mortgages up to $729,750 in certain areas in the United States. These new loan limits have been extended until 2013 in hopes to stimulate the housing market.
Fannie Mae and Freddie Mac loan limits were not increased and remain at 115% of local area median home prices, not to exceed $625,500.
The first part to understanding loan refinancing is to know your ABC’s:
An A Paper Loan signifies that you qualify for a normal mortgage under the guidelines for Fannie Mae and Freddie Mac.
A B Paper Loan signifies that you do not qualify for a normal mortgage through Fannie Mae and Freddie Mac. Borrowers in this category are usually those with serious credit difficulties, such as a recent declaration of bankruptcy, or those who will not be able to afford the payments on a normal loan, or who have no way to document proof of their ability to pay.
A C Paper Loan means that you have bad credit and a collections agent has been hired in case you fall behind on payments.
An FHA Refinance is considered an A Paper Loan that has the credit requirements of a B Paper Loan.
Subprime loans (B, C and D Paper Loans) are intended for homebuyers who need mortgages but do not yet meet the requirements for an A Paper Loan. Unfortunately, the trouble that led to the subprime mortgage crisis stemmed from people applying for subprime loans to buy houses they couldn’t afford, and were unable to pay after several years because of high interest rates.
Adjustments to the Home Affordable Modification Program (HAMP) and programs run by the Federal Housing Administration (FHA) have been put in place to give added relief and assistance to responsible homeowners.
These modifications are intended to give mortgage servicers and originators more flexibility to work with homeowners who are unemployed due to the weak economy, and with those whose mortgage payments exceed their home’s value because of sharp drops in housing markets.
The $50 billion in federal funding for the program changes comes from the Troubled Asset Relief Program (TARP), while the private sector will also share the costs. As many as 4 million homeowners may be helped by these changes, effective until December 2012.
Bank of America has announced the steps it will take to reduce both the number and effects of foreclosures with its acquisition of Countrywide Financial Corp., formerly one of the nation’s largest mortgage servicers.
Under the new mortgage lending guidelines from the combined company, more than $40 billion in troubled loans would be modified or worked out, and some 250,000 homeowners could be prevented from losing their homes.
In keeping with BofA’s previous policy, tenants living in foreclosed properties will be able to remain on the premises for 60 days after the completion of foreclosure proceedings. A tenant who willingly leaves the property within 30 days of the completion of proceedings will receive a “cash-for-keys” payment of $2,000 to help with relocation expenses.
The new combined business will offer customers first lien mortgages in the following categories:
In a statement before the Financial Services Committee of the US House of Representatives, Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability, outlined his department’s goals for the handling of the Troubled Asset Relief Program (TARP).
According to Kashkari, the Acting Comptroller General’s and the Government Accountability Office (GAO) have both met with the Office of Financial Stability to monitor the program. The GAO released its first TARP report on December 2 (sixty days after the program’s enactment) which identified nine areas deserving of the Treasury’s special attention:
The Troubled Asset Relief Program (TARP) is an essential component of the Emergency Economic Stabilization Act (EESA), which became law on October 3, 2008. Its chief purpose is to inject more liquidity into the credit market so that financial institutions can resume lending to consumers at levels that existed prior to the economic downturn.
In providing financial assistance to banks and lending institutions, the program must comply with Section 597 of the Internal Revenue Code.
The Federal Open Market Committee has set a new target range of 0-0.25% for the federal funds rate amid news of a weakening economic forecast.
The rate levels are expected to remain low for the foreseeable future, as the numbers for consumer spending, business investment and industrial production remain weak. Likewise, the Federal Reserve’s monetary policy will continue towards the goal of promoting new and sustainable growth while keeping current price levels in check.
Consumers and small businesses who are pressed for credit and lending options will have greater support through the creation of a new facility to issue asset-backed securities (ABS), through funding from the Troubled Asset Relief Program (TARP).
The Treasury is to provide the Federal Reserve with $20 billion of credit protection in connection with the Term Asset Back Securities Loan Facility, valued at $200 billion.
This facility will fill a void in the ABS market, on which financial institutions have relied in order to provide consumers with federally-guaranteed small business loans, in addition to credit cards, student loans and car loans. More affordable consumer credit is needed to get the market fully active and running again.
To increase lending activity, the Federal Reserve facility will offer liquidity to the issuers of consumer asset-backed paper, giving borrowers more access to affordable loans.
A program to be undertaken by the Federal Reserve will allow for the purchasing of direct obligations of housing-related government-sponsored enterprises (GSEs) including Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Fed will also purchase mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.
The Subprime Reform Act enacted in the state of New York has the potential to resolve a widespread mortgage crisis across the state and prevent another crisis like it from happening again.
This law, which has served as a model for an initiative at the federal level, has two principal goals: to provide immediate assistance to New Yorkers who are nearing foreclosure, and to reform the state’s banking regulations that were partly responsible for allowing the crisis to happen. The law is committed to finding a balance between protecting consumers and making more affordable credit available.
The process for drafting the legislation that led to the New York law also influenced the Housing and Economic Recovery Act of 2008, a comprehensive initiative to help homeowners at risk of losing their homes by refinancing their mortgages