The plan, if approved by Congress, would cost between $5 billion and $10 billion, depending upon participation. President Obama wants to pay for the program by imposing a tax on large banks to finance the FHA’s insurance fund; however, proposals similar to this have failed to win support in the past.
To be eligible for this refinancing program, borrowers must:
- Have a private, non-government bank loan.
- Be current on their mortgage payments for at least six months. Plus, they cannot have more than one late payment in the six months prior to that.
- Have a credit score of at least 580.
- Have a mortgage balance that falls within the FHA loan limits in their communities – a range from $271,050 in low-housing cost areas to $729,750 in high-cost areas.
- Own and live in the home covered by the loan.
President Obama also wants the program to require lenders to write down mortgage balances on loans that are deeply underwater – those in which borrowers owe more than 140% of their current home values. This reduction would lower the risk of the borrower defaulting.
Additionally, a program option would let borrowers refinance into 20-year loans. While this option may not reduce the borrowers’ monthly payments, it would enable them to build home equity quickly and pay off their loans sooner. To encourage borrowers to choose this option, the administration wants the FHA to pay for closing costs for an additional savings of about $3,000 to homeowners.
This program targets the 3.5 million homeowners who are not in default on their mortgages currently. However, it does not help the owners of roughly 3 million homes who are at risk of foreclosure.
The administration hopes this program will bolster the housing market and free up cash to encourage consumer spending – thus helping the economy.
What are your thoughts on this new proposal?
If you’re planning to refinance your home, contact a reputable mortgage broker to review your specific situation with you to find the right solution for your needs.