The Return of Liar Loans..

[Sgt Beavis]

Nice Barack, let's screw it up some more.. Asshole.

http://finance.fortune.cnn.com/2011/...enture+Capital,

Under the new mortgage refinancing plan announced by the White House, you don't need to prove any income to qualify. Sound familiar?

FORTUNE -- The much-written about federally sponsored mortgage refinancing program that started in 2009 fell far short of its aim to help 3 to 4 million homeowners refinance into a better mortgage. It hasn't worked out nearly as well as hoped, with 894,000 mortgages refinanced so far under the Home Affordable Mortgage Program (HAMP).

The new plan from the administration should get a lot more homeowners into cheaper mortgages, but in doing so rewards the so-called liar loans that helped spawn this mess to begin with.

Part of the reason HAMP flopped was because homeowners had to provide income tax statements, pay stubs and bank records to prove they had the finances to afford a mortgage. That was a problem since a vast swath of homebuyers (including me) got mortgages without ever having to do much more than write down annual income on a form.

Under the new plan, renamed to give it the more appealing acronym HARP (for Home Affordable Refinancing Program), you can get a loan for up to twice the current value of your house at current interest rates, currently a near-historic low of 3.94% for a 30-year fixed mortgage. Like one of those late night commercials on TV, Uncle Sam doesn't care if you have good credit, bad credit, no credit or if you own your own car: if you have a mortgage you can get it refinanced, provided you weren't late more than once in the past 12 months on your existing loan. In short, the government has gone from wanting you to prove you deserve a mortgage -- like what it should have demanded from the mortgage industry in the boom times -- to a financial version of don't ask, don't tell.

It's not quite as bad as I make it out to seem. For one, the program only allows refinancing of mortgages already guaranteed by the government through Freddie Mac and Fannie Mae and you can't get a loan for more than your existing mortgage. By lowering mortgage payments, it presumably lowers the risk on the government's balance sheet. Of course, new 30-year loans replacing loans with fewer years left pushes up risk. The plan's incentive to get people to take a shorter loan term by eliminating some fees is a smart way to counteract that.

But consider this: if you have more than 20% equity in your home, you can't participate. If you bought smart, paid 20% or more down and didn't pull out equity to fuel a buying binge back in 2006, there is no help here.

Like with the bailout of Wall Street firms before it, it turns out this bailout ultimately benefits those who stretched the truth and acted irresponsibly.

[mustangguy289]

He only cares about right now.... not the future. That has been obvious his entire term.

[STANGGT40]

i'm mixed on some of this...here's my reasoning:

let's say that you were unemployed for a year, but you get a great job or start making income from a business that's becoming successful. you kept up all of your payments via savings, so your credit is spotless. now, you want to go buy a new house, because you found a great deal on one that has what you and your family needs, and the interest rates are absolutely amazing, so you will likely even lower your payment and get a nicer place. well, with the new requirements, that year of not making anything would knock you out of being able to get a house, because you can't substantiate 2-years of income. let's say that this year you made 100k and last year you made 0...they'll average the two together and you'll get credit for 50k, which means that you probably won't qualify for the loan.

i know a couple of people in this exact position, right now. they won't even waste their time trying to attempt to purchase a house, even though they have the means to do so and are financially responsible, because they know that they can't qualify because of the new rules. if those folks are now financially able to purchase a house, they should be able to do so. they've obviously shown financial responsibility by paying their bills, even when they were unemployed. think of how many people that would apply to...they want to purchase and are able to purchase, but have to wait to be able to have 2-years worth of tax returns to be able to qualify. those people are ready and willing to snatch up some of these forclosures, but can't because of the restrictions.

now, as far as refinancing (as in the article above), if they're already in the house and already have a note, you're probably better off to help them get a better rate and lower their payment than to let those houses get foreclosed on and make the situation worse. although, i'm definitely against those folks that said they make a bunch of money, saddle themselves up with a mortgage that they can't pay, and walk away...that's just people that took advantage of everything.

[mustangguy289]

Ramsey says buy with cash only.

[SMEGMA STENCH]

So basically, weed out responsible people, and help people you know can't possibly afford it. Sounds like a great idea.

[Denny]

We can speculate all we want, but do we really know for sure how this will end?

[onemeangixxer7502]

We can speculate all we want, but do we really know for sure how this will end?

same way as before.

[SVT Lurch]

This plan is just a revamp of one that has been available since 2009. The big issue is the requirements are even more strict than a normal loan, and then there are overlays on top of that from each bank. The governement gets to pass along all these feel good messages about how they're helping the common man because the programs are available - and yet very few qualify. We have sucecssfully closed one (1) of those transactions in the last 2.5 years.

Before everyone gets all up in arms, they're still hashing out the details and nothing is set in stone. It's all just speculation right now. We're supposed to have the final rules by the middle of December for implementation in the first quarter of 2012.

well, with the new requirements, that year of not making anything would knock you out of being able to get a house, because you can't substantiate 2-years of income. let's say that this year you made 100k and last year you made 0...they'll average the two together and you'll get credit for 50k, which means that you probably won't qualify for the loan.

If they're salaried you can use the full $100,000.

[STANGGT40]

This plan is just a revamp of one that has been available since 2009. The big issue is the requirements are even more strict than a normal loan, and then there are overlays on top of that from each bank. The governement gets to pass along all these feel good messages about how they're helping the common man because the programs are available - and yet very few qualify. We have sucecssfully closed one (1) of those transactions in the last 2.5 years.

Before everyone gets all up in arms, they're still hashing out the details and nothing is set in stone. It's all just speculation right now. We're supposed to have the final rules by the middle of December for implementation in the first quarter of 2012.



If they're salaried you can use the full $100,000.

really? i talked to a friend that was in a similar situation, and he said that they would need a full 2-years worth of tax returns to be able to qualify, under the new rules. i usually don't take people's word for something like that, but he's a pretty stand-up guy. so, the requirement is just for one full year, now?

[SVT Lurch]

really? i talked to a friend that was in a similar situation, and he said that they would need a full 2-years worth of tax returns to be able to qualify, under the new rules. i usually don't take people's word for something like that, but he's a pretty stand-up guy. so, the requirement is just for one full year, now?

That's the guideline, but depending on circumstances the income can be used. If it's salaried in the same line of work and they're making as much or more than what they were before they lost their job we've done it with as little as 6 months on the new job (assuming they have a 2 year histroy of making that income prior to losing the job - say 2008 & 2009, lost job in 2010, back in 2011 and making money now). We can't use bonus or commission or anything like that, but it is possible to use their base salaried income after 6 months if the credit is good and payments were made on time.

[Denny]

We can speculate all we want, but do we really know for sure how this will end?

same way as before.

Yep. That's where my sarcasm was going.

[AdamLX]

Every lender has a spin on this. At BAC we could refi portfolio fnma and fhlmc loans under HARP which were non income qualifying loans. You had to demonstrate no late payments, SOURCE of income and not increase the payment by 20%.

If you are switching companies or using a broker you usually had to income qualify.

One of the issues is just because a loan is eligible for the program doesn't mean it always makes sense for the client. Hell, I spoke with people who owed 100k on heir home who thought a 20% drop in payment wasn't good enough even if they were dropping over 1% in interest rate.

[STANGGT40]

That's the guideline, but depending on circumstances the income can be used. If it's salaried in the same line of work and they're making as much or more than what they were before they lost their job we've done it with as little as 6 months on the new job (assuming they have a 2 year histroy of making that income prior to losing the job - say 2008 & 2009, lost job in 2010, back in 2011 and making money now). We can't use bonus or commission or anything like that, but it is possible to use their base salaried income after 6 months if the credit is good and payments were made on time.

interesting...i appreciate the info, and i'm going to pass it on.

[SVT Lurch]

One of the issues is just because a loan is eligible for the program doesn't mean it always makes sense for the client. Hell, I spoke with people who owed 100k on heir home who thought a 20% drop in payment wasn't good enough even if they were dropping over 1% in interest rate.

That's my second favorite scenario when talking about refinancing. The first being they talk about going from a 30 year to a 15 year but decide not to because they will just throw another $100 - $200 at the loan and have the same effect. I ran the numbers out on a $234,000 loan last week and he is leaving over $96,000 on the table by the time it's paid off.

interesting...i appreciate the info, and i'm going to pass it on.

No problem.

[Denny]

I see there is an exodus out of Freddie Mac going on as we speak. LOL