Mortgage bailout: A lifeline, but only for some

After AnnLouise White heard about President Obama’s $275 billion proposal to help homeowners, said Jenifer B. McKim in The Boston Globe, she e-mailed her mortgage broker to see if she might qualify. “Although she can still pay her loan, the office manager hoped the new plan would help her take advantage of historically low interest rates.” It just might. The housing program is intended to help two distinct groups of homeowners—those on the brink of foreclosure and those who, like White, would like to refinance but can’t because their homes have dropped in value.

Homeowners interested in the refinancing program should start by calling their lenders to see if they’re eligible, said Tara Siegel Bernard in The New York Times. To qualify, you must have a “conforming” loan that is owned or guaranteed by Fannie Mae or Freddie Mac. You’ll also need a solid payment history and “sufficient” income to make the new payment. Yet most of the plan’s provisions are dedicated not to fostering refinancing but to encouraging loan modification for the cash-strapped homeowners most in need. The goal is to reduce the percentage of income dedicated to mortgage payments to 31 percent. In some cases, that may mean extending the life of the loan, though the plan “does not preclude lenders from reducing” your loan amount if they so choose.

Borrowers with “jumbo” loans shouldn’t expect relief from Obama’s plan, said Nick Timiraos in The Wall Street Journal. The program will apply to mortgages of up to $729,750, but only in the priciest markets. Indeed, the government isn’t the only lender “ignoring” homeowners with super-size mortgages. Private lenders are loath to originate new jumbo loans or refinance old ones, and they’re doing so only at a hefty premium. That’s prompted many homeowners to “raid” savings to pay off a portion of their mortgage, so they can refinance into a conforming loan. Think twice about that strategy. “If your home has lost 15 percent in two years, why pay down just to refinance?” says Craig Vogt, a mortgage broker in Brooklyn, N.Y. “It’s like losing money two times.”

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