Interest Only Loans For Homeowners? -
Lenders Push To Include In Modifications
The news this week is that banks will begin to push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults.
This plan is part of a new round of ideas and plans to refine the $75 billion "Home Affordable" program, announced in February as a bid to rework as many as 4 million loans. The program's latest phase also is marked by a need to permanently convert more than 500,000 trial modifications by collecting paperwork so consumers' mortgage payments don't revert within months. See last week's article for information about efforts that even include going door to door to reach borrowers.
In addition, the Treasury will soon announce details of a program to encourage short sales of properties by homeowners who don't qualify for modifications. It will include "capped" payments to retire second mortgages that may form an "industry standard" and help curb the "back and forth" with owners of that debt which creates one of the biggest hurdles.
Furthermore, under the current federal program, taxpayer subsidies to lenders, servicers and homeowners are used to encourage the reworking of borrowers' mortgages to cut their monthly payments to 31 percent of their incomes. Servicers are first directed to lower interest rates to as low 2 percent, then extend terms to as long as 40 years and then suspend payments on a portion of the debt until maturity.
Therefore, banks have intimated that the benefit of allowing interest-only periods as well would be a significant pickup in terms of modifications being done, because the current methods often fail to allow loans to pass required tests on whether modifications serve lenders better than foreclosures.
However, there has also been concern that Interest-only periods of five or 10 years would mean a risk of defaults only being delayed, as payments would need to eventually include principal as well.
As always as additional plans and details are released we will provide both information and analysis on the latest changes to home loan and home retention programs.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com