President Obama proposed the concept of lowering the interest rates of mortgages for those under water through government aided re-financing to lwer rates. I think this is a smart idea and it amazes me that for the past 3 years banks have been so slow to consider this. Lets assume a $ 300k homeowner has a 30 year fixed rate mortgage at a rate of 6%, his monthly payment would be about $ 1,800/month. At a rate of 4%, this monthly payment would drop about $ 300.00. That’s pretty significant and could result in far fewer foreclosures, a procedure that is extremely expensive for the banks, state and federal governments. A foreclosure costs about $ 78,000.00.
Now imagine a foreclosed house results in a drop in value of 20 surrounding houses by about 5% (15k)….usually its much more than this…..that’s an additional cost of about $ 300k more…..then add in the loss of real estate tax revenues……and the spending of the homeowner in the community….not to mention the cost to the human dignity that takes a great deal of time and effort (and cost) to restore.
The mortgage assistance plan by the Federal Housing Finance Administration will help borrowers with little or no equity in their homes, many of whom are stuck with 6 or 7 percent mortgage rates, to seek refinancing and take advantage of lower rates. The FHFA plans to remove caps that had allowed homeowners to refinance only if they owed up to 25 percent more than their homes are worth.
Leonard Steinberg says: “It’s time for us to be practical, not political, and enact solutions to big problems that work. This is a solution worth considering.”