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Obama mortgage plan should rescue many Seattle homes

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  • Obama mortgage plan should rescue many Seattle homes

    But it could do more, say local experts


    The Obama administration's new mortgage plan should help many troubled homeowners in the Seattle area, although it could do more, according to local experts.

    "I see a lot to be gained from it," said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

    Because Seattle's delinquency and foreclosure rates have remained far lower than those in many hard-hit areas, the area should benefit from new incentives for lenders and mortgage servicers to work with borrowers who have not yet fallen behind on their payments, Crellin said. "That really gives us a leg up in terms of stabilizing the market more quickly."

    After initially announcing its program last month, the administration released guidelines for the "Making Home Affordable" plan Wednesday. Lenders can now start offering modifications under the plan, which aims to help 7 million to 9 million homeowners and set an industry standard for mortgage modifications.

    The plan includes a program that, through 2010, will allow refinances at current low rates for 4 to 5 million homeowners who have solid payment histories on mortgages owned by Fannie Mae or Freddie Mac but have not been able to refinance because they owe 80 to 105 percent of the value of their homes. Fannie and Freddie own about 60 percent of American mortgages, although they have a much smaller share of troubled loans.

    In Washington, 126,000 loans -- 9.8 percent of all mortgages -- were for more than the home was worth as of Dec. 31, 2008, according to First American CoreLogic. Adding in mortgages within 5 percent of negative equity brought the total to 174,000 loans, or 13.6 percent of the total. The nationwide total was 19.8 percent for mortgages in negative equity and 25 percent in or nearly so.

    Making Home Affordable also has a modification program that the administration says will help up to 3 million to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.

    People interested in either program should contact their lender or loan servicer.

    Seattle mortgage originator Rhonda Porter said several of her past clients have called to ask about the new plan.

    "People are pretty much accepting that they may be upside down (meaning they owe more than their homes are worth), and they're wanting to take advantage of these rates," she said.

    Donna Dziak, mortgage and tenant counseling program manager for the Seattle nonprofit Solid Ground, said the new program was "way better" than Hope for Homeowners -- a Bush administration predecessor that garnered little interest from lenders and servicers.

    "It's certainly a lot more flexible," she said. "The upside is the incentives for the servicers to participate."

    While lender and servicer participation is still not mandatory, financial institutions that accept bailout money from the Treasury Department must participate, and participants must modify all loans that meet federal eligibility requirements. The government might want to require participants to hire more staff, Dziak suggested, noting that lenders have been taking 90 to 110 days to process modifications.

    Joe Brancucci, executive vice president at BECU credit union, said some people who now owe more than their houses are worth would rather walk away than work to keep their homes.

    "For those people who really want their house, this is a great plan," he said.

    BECU will use the program to its fullest extent for its 600,000 members, 83 percent of whom own a house and 8 percent of whom currently have mortgages through the Washington credit union, Brancucci said.

    Erik Hand, president of Response Mortgage Services, which is real estate company John L. Scott's mortgage branch, called the new program "a great step for housing and for the economy as a whole."

    Hand said another move that would particularly benefit the pricey Seattle area would be if the Federal Reserve would start buying mortgage securities for "jumbo" loans above Fannie and Freddie's limits.

    Ron Sparks, managing vice president of Coldwell Banker Bain real estate, said he would like to see the government bring down interest rates to something like 4 percent as an inducement for one year. Rates averaged 5.24 percent for a 30-year, fixed-rate loan Wednesday, according to Bankrate.com.

    Dziak said she's seeing more people who would still not be able to afford their homes even if their interest rate was reduced to zero. Porter noted that reducing payments would do little to help people who lose their jobs.

    Government officials acknowledged Wednesday that the plan was not a cure-all.

    "This is not going to save every person's home," White House Press Secretary Robert Gibbs said. "The plan is not intended to ... augment somebody's loan for a house that they couldn't afford under any economic situation, good or bad."

    Brancucci said job losses were his main concern for the Seattle area, although the area's prospects remained strong long-term.

    "We still have a lot of diverse industries and hopefully we will be quicker to recover because we have something to recover to," he said, referring to the area's strong economic base compared with more troubled areas, such as Detroit.


    The Obama administration's housing plan will allow refinances at current low rates for 4 million to 5 million homeowners who have solid payment histories on mortgages owned by Fannie Mae or Freddie Mac. Some details:

    # Loans must have been originated by Jan. 1.

    # Loans may be modified once between now and Dec. 31, 2012.

    # Participating loan servicers must modify loans where the net present value is greater with modification than without.

    # Servicers will bring payments down to no more than 31 percent of gross monthly income by reducing the interest rate to as low as 2 percent and then, if necessary, extending the loan term up to 40 years and forgiving principal, in that order.

    # The government will share the cost of bringing payments down from 38 percent of income to 31 percent.

    # Servicers will get an upfront fee of $1,000 for each modification, plus "pay for success" fees of $1,000 per year on performing loans.

    # Homeowners who make their payments on time will get up to $1,000 in principal-reduction payments a year for up to five years.

    Details: financialstability.gov.

    Source: http://seattlepi.nwsource.com/local/...ortgage05.html
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