Look at New Programs for Home Buyers- There May Be One for You
by Jaimie M. Bergman
Headlines have recently concentrated on the $700billion bailout bill, but how many homeowners are aware that a bill passed last year to help them became effective on October 1, 2008? This new program, named “Hope for Homeowners” is intended to help homeowners facing very high reset rates on their variable rate mortgages.
In a lot of cases, homeowners with adjustable rate mortgages see their rates reset and the new rate makes their home loan unaffordable.
One caveat exists, however, in that it is the lender, and not the borrower who makes the decision whether or not the borrower can take advantage of the program. They might be willing to do so if the only other solution to renegotiating is to let the house foreclose. The bank’s loss would be much less in this case.
Here is the way the program is organized: Formerly, borrowers would use ARMs to take advantage of temporary dips in the interest rate. But if the rate increased, the homeowner would want to see about renegotiating the loan. But with falling housing values, there is often not sufficient equity in a home to be able to refinance the maturing loan.
If you paid $250,000 for your home five years ago, you probably still owe well over $200,000 on it, but the value of the house is only $190,000 because of falling home prices. This kind of reverse equity in the loan gives the borrower no option but to reset, at whatever rate.
Hope for Homeowners can guarantee the repayment of the new mortgage to the lender, with one big caveat calgary mortgage. One problem is that the loan guarantee is for no more than 90% of the value of the home. This means, in our above case, that the homeowner could only borrow $171,000, and the bank would have to take a loss of over $30,000. The bank, however, would have a guarantee that the $171,000 would be paid. The decision the bank has to make is whether it is better to take the loss in return for a long term guarantee. Some banks seem to think not. It seems manychoose not to participate and continue to risk foreclosures.
This may seem odd, but accounting may be the reason for it, since a home, even if it is in foreclosure, still shows as a credit on the books of the bank, but a loss would have be reflected immediately. Most lenders don’t purposely want to bring down the value of the balance sheet of their bank.
Many homeowners can certainly benefit from such a program, especially if the assessed value of their home has not gone down too much. It is a matter of the loss the lender is willing to accept, so 90% of a higher value may be an attraction to the bank. alberta mortgage rate
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