New Program Will Reduce Mortgage Principal

By James Woodard

May 2, 2016 5 min read

A new program, now being finalized, will actually reduce the principal of mortgages for qualified homeowners. A report on the program was carried by the National Association of Realtors.

"About 33,000 seriously delinquent borrowers will likely be eligible for a new program under the mortgage giants to have mortgage balances reduced. The new plan - long rumored - was announced by the Federal Housing Finance Agency. To qualify, the borrowers must owe more on their home than it is currently worth and meet other criteria.

"FHFA, the regulator to Fannie Mae and Freddie Mac, said its principal reduction program could well be their final opportunity to [help these borrowers] avoid foreclosure," says Melvin L. Watt, the agency's director.

The report spells out the qualifications needed to participate in the program.

"To qualify, home owners must have an outstanding balance of more than $250,000 on their mortgage and be more than 90 days delinquent on their mortgage payments as of March 1. After the principal reduction by the FHFA, borrowers still will owe 15 percent more than their homes are worth, The Wall Street Journal reports.

"The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a real problem," Watt says. This program will "allow an opportunity for delinquent, underwater borrowers in these areas to avoid foreclosure and save their homes."

"Watt has called the decision to allow principal reductions "the most challenging evaluation the agency has undertaken during my time as director."

The report also notes that some housing leaders are not happy with the new program.

"The program has been met with some criticism. Some consumer advocates argue the program doesn't go far enough in helping enough struggling home owners and others say it comes too late, following about five years after the housing crisis."

Q: Are home sellers today receiving solid gains from their investment?

A: In today's sellers market, most home owners are benefiting from substantial price gains. Here's a report from the National Association of Realtors:

"Most home sellers are seeing plenty of equity when selling their home. In March, sellers on average sold for $30,500 more than what they had paid for their home — a 17 percent gain, according to RealtyTrac's March and First Quarter 2016 Home Sales Report.

"That marks the highest average price gain for sellers in any month since December 2007, the onset of the Great Recession.

"Home sellers in many markets are now seeing average price gains close to or above what home sellers experienced during the last housing boom," says Daren Blomquist, RealtyTrac senior vice president.

Q: Why are mortgage rates holding at such a low level?

A: Here's an interesting quote on that subject.

"Volatility in financial markets subsided over the past week, allowing Treasury yields to stabilize," says Sean Becketti, Freddie Mac's chief economist. "As a result, the 30-year mortgage rate was mostly flat, up only 1 basis point to 3.59 percent.

"The release of March's existing-home sales report, which shows monthly growth at 5.1 percent, suggests home buyers are taking advantage of low mortgage rates as the spring home-buying season gets underway."

Q: How much discount do all cash buyers receive when purchasing homes?

A: On April 27, RealtyTrac, a source for housing data, released its first quarter of 2016 U.S. Cash & Institutional Investor Housing Market Report, which shows that all-cash buyers of single family homes and condos nationwide paid 23 percent less per square foot than all homebuyers, but that cash buyers in 9 percent of local housing markets paid a premium price per square foot.

Nationwide, all-cash buyers purchased single family homes and condos for a median $91 a square foot in the first quarter of 2016, a discount of 23 percent below the median $118 per square foot for all home purchases.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at Jim Woodard's email: [email protected]

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