Thursday, July 2, 2009

Feds Implementing 125% Loan to Value Mortgages

From Dr. Ed Harrison at Credit Writedowns comes Can I borrow the full amount and an extra 25% too?

From his blog quoting CNBC:

"Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.

The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.

Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth."

Dr. Harrison explains:

Addendum: just in case it isn’t clear, this measure is intended to keep banks from taking writedowns. A homeowner now 20% underwater can borrow the full amount of the original loan even though the house is worth 20% less than that amount. The home ‘owner’ stays in the house. The bank gets its regular payments (and a nice re-financing fee to goose earnings in Q3). And no one defaults. It’s all good, right?

Also, Yves Smith has a nice writeup with some additional points on Naked Capitalism on this very topic.

My comment: things have to be in a real mess to be at this stage.

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1 comment:

  1. Thanks alot for the great posts.But how to fix an upside down home mortgage?