Loan Modification Plan (Obama)

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Loan Modification Plan (Obama)

Dave Kennedy
Real Estate Investor · Georgetown, MA · Member since 2008 · 250 posts · 6 votes

I've been listening to CNBC this morning and they have been releasing some of the plan to bailout homeowners.

It was just released an hour and half ago so the details are few and far between at this point but here are some notes.....

-Helps and estimated 4-5 million homeowners
-conforming loans owned or guaranteed by Fannie and Freddie.
-borrowers refi to lower interest rates
-no jumbo loans.

-$75 B stability initiative for at risk borrowers. Lenders need to reduce the amount on the loan to bring the ratio to 38% of the borrowers income. The government will then step in and subsidize more of that bringing the ratio down to 31%.

-Servicers to rework the loan will be paid 1,000 incentive by the govt and then another 1,000 in year two if the loan is successful and the borrower is current.

-The government will also pitch in 1,000 a year to the borrower to stay current on their loan. Effectively you get 1,000 a year if you don't miss a payment from the government. But this is only people loans who are reworked not people that have been paying and current all along.

-Government is going to double the amount of money to Fannie and Freddie so they can continue to buy up loan packages. Additional money not coming from TARP.

Thoughts......?

(This is not going to go over well here...jmo.) :D

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  • Harrison Painter
    Indianapolis, IN · Member since 2008 · 759 posts · 185 votes
    17y

    This might be a little off topic, but I feel very relevant:

    What is going on with Social Security?

    It was not that long ago that people were in a tailspin about the SS well being dry very soon.......

    As we spend Trillions here, I have not heard this issue addressed in a very long time.

    I would think that a bankrupt SS system would have a major impact in all of this mess.

    As our populations ages, what good is saving a mortgage if a retired person can not eat or keep the lights on?

    Just a thought....

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  • Robert Mack
    Real Estate Investor · Bergen County, NJ · Member since 2008 · 390 posts · 72 votes
    17y

    Enjoyed using the chat feature Josh. Let's get people more aware of it!!

    Here's an article from the WSJ about Lee County in Florida. They have a huge glut of foreclosures and it says the judges just can't handle them all. They decided to do "rocket docket" cases as they put it and hear about 1,000 cases a day, each lasting a minute or less. Basically the judge is asking them two questions:

    1. Are you current on your payment
    2. Are you still in the home

    If you you answer no to the first he gives u 60 days to vacate if your currently in the home, if not then pack up and get out asap. No questions asked, takes 60 seconds tops.
    http://online.wsj.com/article/SB123491755140004565.html

    I don't see how the system can handle the amount of cases they will here according to this new plan though. These will be cases with not only foreclosures, but people in danger of foreclosure, and people underwater.... I'd like to see a number of the amount of homes which are in one of these situations.

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    17y

    This will continue to be a great CRE's buyers market well into 2010 for sub2, land contract, or seller carry Wrap.

    You can make cash on selling on lease option. Get the TBers 1st, and get them before May 1st 2009 so you can buy - control 25 houses before Sept 2009.

    Keep up the great Obama RE Rescue info!

    Brian : :cool:

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    Rush just ran the numbers. For the money dropped into this and the number of troubled homeowner's Obama said this is going to help the numbers come out to about $8,000 per troubled homeowner.

    Congratulations folks - $8,000 will save you from foreclosure.

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  • Josh Green
    Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
    17y
    Originally posted by Tim Wieneke:
    Rush just ran the numbers.

    Ah, one of the greatest economists of our times! :wink:

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  • Robert Mack
    Real Estate Investor · Bergen County, NJ · Member since 2008 · 390 posts · 72 votes
    17y

    Here's a poem/prayer I came across, found it amusing.

    OBAMA'S PRAYER
    By Pam Meister

    Our Obama, who art in Washington
    Flip-flop be thy name.

    They Presidency come, they will be done
    In D.C. as it was in Chicago.

    Please take away our daily bread
    And raise our taxes
    As we appease voters who want social services.

    And lead us away from self defense
    And deliver us from sovereignty.

    For thine is the way of globalism
    And the power of Socialism
    Forever and ever,
    Yes we can.

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    I think I qualify for the loan modification plan. I've only got two little issues.

    1. My principal is less than half the value of my house.

    2. I don't have a hardship.

    Could I claim a stress-related hardship from dealing with tenants? That takes care of number 2. I wonder if I could refinance my home loan one week to take out all the equity and then get a bailout the next? I guess they would want me to blow the money on an expensive vacation around the world or some other consumer crap (how about a small yacht) so that I could be considered irresponsible enough to deserve a bailout.

    Help me out here guys! If all the deadbeats get rewarded, I want mine too!

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  • Joe Salimao
    Real Estate Investor · Blackwood, NJ · Member since 2009 · 79 posts · 10 votes
    17y

    So should we as investors begin looking at other investment oppurtuinities other than preforeclosure? Doesn't this completely wipe out the foreclosure market?
    Joe

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    17y
    Originally posted by Joe Salimao:
    So should we as investors begin looking at other investment oppurtuinities other than preforeclosure? Doesn't this completely wipe out the foreclosure market?
    Joe


    I think unless the property is a REO I would not be interested in getting involved. I anticipate the Govt getting involved with post-foreclosures.

    But there are other ways of making money in REI with little risk, like cooperative assignment, where you control with lease option, act as principal, and then assign the deal for a 3-5% fee, some in cash, some in a secured note.

    Brian

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  • Dave P.
    Real Estate Consultant · Member since 2008 · 792 posts · 30 votes
    17y

    I've tried to read all the replies here, but I apologize in advance if I'm repeating someone else.

    I think this policy is a nothing-burger. It only applies to Fannie and Freddie loans. All the loans securitized on Wall Street are not eligible for this program, unless I am misunderstanding something.

    No?

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    17y
    Originally posted by Joe Salimao:
    So should we as investors begin looking at other investment oppurtuinities other than preforeclosure? Doesn't this completely wipe out the foreclosure market?
    Joe


    Oh not at all! This is going to help the foreclosure market big time! At worst, what we're going to have to do is take a 6 month break while the electronic money is redistributed back to the federal government.
    0Reply
  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    17y
    Originally posted by Josh Green:
    Originally posted by Tim Wieneke:
    Rush just ran the numbers.


    Ah, one of the greatest economists of our times! :wink:



    Actually I think of him as better than just an economist. An economist is simply a well read employee paid to explain things that have already happened. It takes more than that to become an entrepreneur who makes $33 Million a year, not including book royalties, speaking fees, his own side investments, etc....

    When it comes to financial legislation, I don't take the advice of rich people lightly.
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  • Harrison Painter
    Indianapolis, IN · Member since 2008 · 759 posts · 185 votes
    17y

    It seems odd that this is not a 'hotter" thread than this?

    I have had some time to take all of this in and really think about what is going on. In trying to put my political thinking hat on, this is what I have come up with:

    This is nothing more than a way to slow down the faucet and not to allow the market to completely implode all at once. If we look at this on a global scale, the entire planet is in distress. So we do not even have anybody to borrow money from to help us. That leaves us to print money. Since the rest of the world is sinking too, it is probably the best time in history to fire up the presses, as it will not create near the pressure on the dollar as if other parts of the world were doing well.

    As I see it, this program will not really help many folks. and I base this on some of the numbers I have seen stating over 50% of the people that re-modify fail anyway. (I am confident that is a VERY conservative number).

    America has bad habits, job decline, and economic turmoil. So the hard fact is many of the folks this is trying to help will not succeed. People might argue this with me, but I do not believe the vast majority of these folks are deadbeats, but somewhat a victim of the market, government pushed loans, and "instant gratification" conditioning that our society provides.

    To make things happen on the political front, heartstrings need to be pulled, and this is exactly what they are doing. If you want to learn how to sell something, anything, watch your politicians in action. That is their job in its most basic form, sell their policies to the American public and close the deal.

    It is hard to criticize these programs in a public forum when the argument back from the other side is "We are helping people, and your against that?". Once the heartstrings are pulled, you look like a terrible human being for attacking the policy. This is a classic, and powerful, tactic with a built in defense system to get something that you want.

    Trying to find some positives:

    At first I was mad, but now that I have taken a step back, I am seeing there might be more opportunity here than meets the eye. Maybe our thinking is either too emotional right now, or, quite possibly shallow.

    While this type of program will slow the market down, it could work in our favor. They did increase the Fannie Mae limits to 10....so this tells me they know investors are a big part of the solution....But we also know that there is NO WAY they can say this in the public square and not be persecuted for it.

    I am just trying to fit these puzzle pieces together. Either I am way off base, or I am starting to understand this.....

    Your thoughts?

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  • Joshua D.Pro Member
    BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
    17y

    Housing may have been the start of all of this, but it is not going to stop it by itself. Housing is in collapse, but so is the job market, retail, commercial real estate, manufacturing, etc. Until all of these are handled, one is just going to drag the rest down.

    What is the answer?

    Podcast Guest on Show #100
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  • Richard Warren
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
    17y

    Between the stimulus package ($1.2 billion with interest), TARP ($700 million without interest), auto bailout, and now this “mortgage rescueâ€, I see this as Obama taking a huge gamble. He is betting his presidency on this. If it works (or they can spin it properly) he gets reelected and is a hero. If it fails he’s gone in four years. Talk about audacity, I admire his risk taking. The problem is that our money is his bankroll.

    :cool:

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  • Dave Kennedy
    OP
    Real Estate Investor · Georgetown, MA · Member since 2008 · 250 posts · 6 votes
    17y
    Originally posted by Joshua Dorkin:
    What is the answer?

    Josh....the answer is free market.

    As bad as it may get it'll bounce back. New generations and people will be allowed to prosper when the pieces are picked up.

    Theres no way the government can stop all those problems by bailing them out. The bailouts tend to not solve the problem but distribute and prolong them imo.

    BTW...nice chat. I got a call in the middle of it so I wasn't able to part take after that. The chat is a great way to talk with these breaking events. After all we are witnessing history.

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  • Dave Kennedy
    OP
    Real Estate Investor · Georgetown, MA · Member since 2008 · 250 posts · 6 votes
    17y

    Anyone else think the press conference was a joke the way it was handled? Its like Obama is a celebrity. He comes out to a wild screaming crowd that sounds like a rally. When in fact he is reporting a sobering statement about the economy and that we are in dire straights. He uses stories and rhetoric about how this is going to "change" it all.

    The entire crowd has no idea what the hell he is even talking about. They just think that if they are in trouble they will be saved.

    I just thought the entire atmosphere was strange and staged. He should have held a press conference in a proper manner dealing with this in a serious way. Not some party atmosphere.

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  • Chris T.
    Wholesaler · Amarillo, TX · Member since 2008 · 369 posts · 75 votes
    17y

    So what's the big deal about losing your home through foreclosure? The real issue is whether or not you have a roof over your head. People can always rent! It's not like you HAVE to live on the street because your home was foreclosed. Why is everyone "entitled" to own a home nowadays?

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  • Pierre Clark
    Developer · Chicago, IL · Member since 2008 · 26 posts · 8 votes
    17y

    Here are a few links that can, I think, shed some light on this discussion:

    Obama Foreclosure Plan Gets Generally Positive Reviews

    Marketwatch: Lawmakers and bankers support Obama loan plan

    Here's a link to a summary of the plan being proposed:

    Homeowner Affordability and Stability Plan

    I was on a conference call this morning with members of the Administration from the Treasury Department and HUD and the general reaction was positive, although most of the people on the call were part of the affordable housing and foreclosure intervention communities around the country.

    This is an investor's site and I am an investor too although I also work at developing affordable housing. I think Obama's intent is to restore confidence and create incentives among banks to lend money for homeownership and try to stop the freefall in housing values by stabilizing communities through incentivizing refinancing at lower rates of interest and lower monthly payments. From an investor standpoint, nothing Obama does stops anyone from buying REOs or using any other creative financing mechanisms and as someone on this thread pointed out, the increase in the number of investor loans from 4 to 10 is significant for the property investor community.

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    17y

    Pierre, you stated that the plan doesn't do anything to stop people from buying REOs...but from an investor standpoint this isn't good because if the program works as it's intended there will be a lot less REOs out there.

    Also from an affordable housing point of view it isn't too great because it could artificially raise the prices of housing . That is the intent of this to stem foreclosures and raise home values.

    So I don't think it's that great from an affordable housing perspective either..
    With the amount of REOs at low prices there is a lot of affordable housing in certain areas.

    It seems like if the government didn't get involved homes would go from those that were mostly irresponsible (stated income loans) to those that are more responsible now..partly because they have to be honest about their incomes because of current lending standards.

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  • Pierre Clark
    Developer · Chicago, IL · Member since 2008 · 26 posts · 8 votes
    17y

    As a matter of fact, since one focus of the program is to get investors to purchase so-called "bad" assets (basically REOs) from the banks, there are many investor consortiums around the country (including ones led by former executives of the Resolution Trust Corporation) that are organizing now to buy these REOs in bulk. As for the affordable housing situation, for years prices were inflated by bad appraisals and those inflationary prices made it difficult to find affordable housing. The drop in prices is making homes more affordable and there are billions of dollars in the housing plan to support the purchase of affordable housing by low-mod income homebuyers at prices they can pay. From my view, the purpose of the program is to reinvigorate lending, stabilize housing prices, and create incentives for lenders to lend to people who want to buy homes, and for investors who see an opportunity to purchase properties as lease options, rentals, etc. It injects billions of dollars into the financial pipeline and that has to be good for everyone in this economy.

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  • Manish Shah
    Member since 2008 · 11 posts · 0 votes
    17y

    So, some scenarios (this isn't me, just trying to get a little more idea into it):

    - If an investor has 4 properties and their DTI on the aggregate of the 4 properties is say, 90%, will the government lower principal/interest for all 4 properties, so the aggregate DTI is 31%? This is difficult, especially if all 4 are under different banks.

    - How are banks going to execute this? I'm assuming this has to be bank driven then consumer driven right? Will the bank voluntarily send out adjustments? If so, good luck with that. I don't think the banks care as much and are just going along for the ride. Someone said the few thousand incentives are not worth it, I think I agree.

    - If someone is on a non-conforming 30-year, will they readjust it to a 30-year, or keep it as an Alt-A?

    - What if there is a primary value of $400,000 and the mortgage was say, $300,000, so someone took a $100,000 HELOC? And now, the home principal is down to $200,000 (the market value), what happens to the HELOC?

    I think although the plan is conceptually a general way to slow down drops in values, there are a lot of details which are unclear, and as a result, will not be considered by the banks.

    Also, I doubt the administration considered homes that are investments, but those have the same issues, or more issues, as primaries.

    Manish

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  • Stephani Davis
    Real Estate Investor · St. Petersburg, FL · Member since 2008 · 190 posts · 91 votes
    17y

    Manish,

    From what I understand, this bill does not apply to investment properties- only your primary residence.

    Steph

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    The ONLY thing that will work is to allow the market to return to equilibrium (which involves some pain).

    This entire mess was caused by the government. Alan Greenspan pumped cheap money into the economy after the last bubble (the dot-com bubble) because they are trying to do the impossible - keep the economy going up, up, up. Of course, this flies in the face of common sense that "what goes up, must come down"). That caused the real estate bubble!

    Then you had Bill Clinton, George Bush, Barnie Frank, the Congressional Black Caucus, Chris Dodd and numerous other socialist idiots in Washington who promoted the Community Reinvestment Act, which was designed to promote "homeownership" for people who weren't credit worthy! How's that working out????? Even after their loans are modified, more than half of these borrowers are going right back into default!

    The interest rate and principal are NOT the problem. A certain percentage of the population is simply irresponsible and they should not be homeowners!

    What is the answer? The answer is for the government to simply go home and let the market correct. Let failed homeowners become renters. Let failed banks go bankrupt. Let credit card companies go belly up if they made a bunch of bad loans. Let insurance companies and hedge funds go bankrupt if they bought instruments that were based on bad mortgages.

    In other words - LET THE MARKET WORK!

    That's a plan that WILL work and it came from a hillbilly in Ohio!

    Mike

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  • Jeff TumbarelloPro Member
    Real Estate Broker · Fort Myers, FL · Member since 2008 · 1k+ posts · 323 votes
    17y
    Originally posted by Pierre Clark:
    Here are a few links that can, I think, shed some light on this discussion:

    Obama Foreclosure Plan Gets Generally Positive Reviews

    Here's a link to a summary of the plan being proposed:

    I was on a conference call this morning with members of the Administration from the Treasury Department and HUD and the general reaction was positive, although most of the people on the call were part of the affordable housing and foreclosure intervention communities around the country.

    This is an investor's site and I am an investor too although I also work at developing affordable housing. I think Obama's intent is to restore confidence and create incentives among banks to lend money for homeownership and try to stop the freefall in housing values by stabilizing communities through incentivizing refinancing at lower rates of interest and lower monthly payments. From an investor standpoint, nothing Obama does stops anyone from buying REOs or using any other creative financing mechanisms and as someone on this thread pointed out, the increase in the number of investor loans from 4 to 10 is significant for the property investor community.



    Mr. Clark,

    I am sure the socialists on the conf. call were quite excited as to getting more money. I have spent some time with those types of folks here is what I learned

    First: You will find them at a really nice hotel, in a seminar, talking about how they would like to make a difference. They are with the same people that were at the seminar last week, week before that they had a seminar too

    The Common mantra's:

    How much of this money can I use for Admin Fee's?

    And the best one, we will really make something happen when we get some more money. That last check was just not enough. :roll:

    The last program did not work.

    All these people are doing is stealing money from my children and giving it to their friends

    I say let it all fail.......

    Lets get it over with so we can move on.
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