New Mortgage Legislation - Will it Help?

In recent days, new legislation has been announced, that is projected to help as many as 1.2 million homeowners. The plan basically is designed to freeze the interest rate on sub -prime adjustable rate mortgages (ARM) for up to five years, providing relief from a sky-rocketing mortgage payment on homes with very little or no equity in them, thereby slowing the ongoing foreclosure rate. Is the plan a cure-all or simply a band-aid? Here are the guidelines. If you make it through all the stages, then you may be in line for a bit of relief.

Stage one, The loan must have originated between January 1, 2005 and July 31, 2007 and reset between January 1, 2009 and July 31, 2010. There are an estimated 2.2 million loans out there that meet this criteria. If your loan did not originate in this time frame, you lose. If it did, move on to the next stage.

Stage two, You must be current on you mortgage payment. The plan excludes anyone who is more than 30 days late at the time the mortgage would be modified and anyone who has been more than 60 days late in the past year. Still current on that payment? Go to stage three.

Stage three, The borrower must be deemed to be in need, or at risk. How is this determined? Well, credit scores cannot be above 660 and the equity cannot exceed 97% of the home’s estimated value. If you have been able to maintain a better credit rating or have too much equity in your home, you will be eliminated. Unfortunately, if you have been able to do this and are on the cusp, you will be punished for doing so. If you meet all this criteria, then you may be in line for some relief from those rising house payments.

To find out if in fact, there is relief available to you, there is a hotline you can call to find out more: 1-888-995-HOPE.

As you can see, this is a step in the right direction, but unfortunately, falls a bit short. Of the estimated 1.2 million homeowners that are expected to benefit from this plan, it has been reported by Barclays Capital in the New York Times, that only 840,000 will actually be covered.

Before you stand up and say this does not affect you because you are on a fixed rate plan, so why should you care? Consider this. If the trend continues, foreclosures will continue to increase, which opens all kinds of new issues regarding the economy. But that aside, it will also drive the value of your home down by having too many foreclosures on the market.

I commend the Bush administration for taking this step and hope they will continue to move in this direction. It is a complicated issue at best, but it must be dealt with.