Housing Crisis Remedies - Should We Hold Our Breath?
It’s wait and see time for both the American economy and the housing market. Today President Bush signed the stimulus package into law though many of the big provisions concerning housing won’t take place until the summer.
Yesterday it was announced the nation’s largest loan servicers were freezing foreclosures for 30 days so possible workouts could take place. This includes shifting both interest rates and loan balances lower. What’s new about this shift in attitude is the policy is not just for subprime loans. All delinquent borrowers can be helped.
The Fed has already lowered rates significantly and FHASecure is available to help troubled subprime borrowers. What can be done has been done. Now we wait and see.
Struggling and even not so struggling homeowners
in certain markets have shown a proclivity just to walk away if their homes are going to lose value. Giving them another 30 days may be an additional incentive to walk and pocket the mortgage payment. Further, Project Lifeline - a coalition of the biggest loan servicers - has indicated loan modification could mean loan reduction up to 30% depending on the individual homeowner.
There seems to be a disincentive to paying your mortgage on time in this country. Why pay when you can get a no fee refinance to a lower rate? Servicers may even lower your balance!
On the other hand a huge arsenal has been lined up against the housing crisis and these measures could turn things around. If lenders are willing to deal with struggling borrowers by lowering loan amounts, they should be more willing to entertain offers of short sales. The combination of lower prices and lower interest rates could get a lot of people off the fence. There is a lot of inventory out there nationally and there will be more because of foreclosures. With so many people running for the sidelines, I sense opportunity for investors.
We do need to wait for details on two fronts. First, what will interest rates be in July when the new higher loan limits take place? Second, what will the new limits be? Not every market will get the generous proposed amounts of $729,750. Until we know this information, it will be hard to make the decision to buy.