Kona Kohala Blog

Well, here goes another $275 Billion so let's hope this works.  Perhaps one of the most controversial parts of this package is what is known as "Cram downs", allowing foreclosure judges to modify loan amounts without lender approval.  This is one part of the package that does require an act of congress in order to change foreclosure law.

$75B is expected to help about 3 million homeowners hold on through loan modifications.  The fed will use some of this money to pay loan servicers $1,000 upfront for each loan mod that meets federal guidelines and then another $1,000 per year for the next three years if the borrower stays current with the loan repayment.

Borrowers may also qualify for $1,000 per year for up to 5 years if they stay current.  Whether that will be a tax credit or a check or some other form of payment has yet to be decided.  More on that later.

Under this new plan, lenders will be required to modify interest rates on loans so that monthly payments are no more than 38% of the borrowers income.  After that, the feds will match dollar for dollar to further reduce the margin to 31% of income.  This will be available to all loan mod qualifiers but those with more than 55% debt to income will have to agree to federal housing counciling to help them with their financial affairs.

One problem is that none of this assistance is going to be available to those with Jumbo loans, over $625,000, or those with private equity loans, non FHA qualified mortgages.

There is much more to the bill than just this and we'll look deeper into it later on.  For now, if I put my conservative leanings aside, this plan may be of some assistance.  It's going to take cooperation among people who don't normally get along all that well.  In the past year, the Bush administration attempted to do very much the same thing but made it voluntary on the part of the lenders.  That didn't work out so well so now that it's becoming mandatory, we may see more positive effects.

This may save some homes but if people don't go back to work, even the lowest monthly payment may prove to be too much for some families.  The feds need to immediately institute the job creation programs if this is going to work.  aloha