105% --> 125% Fannie/Freddie refi - impact on housing?

NEW -> Contingent Buyer Assistance Program
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Cuatro_IHB

New member
Sorry if I'm posting old news, but on July 1st the administration unloaded another clip in an attempt to prop up home values. They announced bumping Fannie/Freddie LTV limits from 105% to 125% to allow homeowners to refi out of their ARMs. It won't help people who truly can't afford the home they bought. But for those who can afford their home but lack equity to escape their arm adjustment, this could save them from losing their house.



Maybe this just prolongs the inevitable, but I still contend that this administration will go to extraordinary lengths to prop up home values. What do you think - next year 150% LTV refis for all? How much of an impact do you think these moves will make?
 
[quote author="Cuatro" date=1247620098]Sorry if I'm posting old news, but on July 1st the administration unloaded another clip in an attempt to prop up home values. They announced bumping Fannie/Freddie LTV limits from 105% to 125% to allow homeowners to refi out of their ARMs. It won't help people who truly can't afford the home they bought. But for those who can afford their home but lack equity to escape their arm adjustment, this could save them from losing their house.



Maybe this just prolongs the inevitable, but I still contend that this administration will go to extraordinary lengths to prop up home values. What do you think - next year 150% LTV refis for all? How much of an impact do you think these moves will make?</blockquote>


If they could afford their home at the time they bought it, they would not have used an ARM to finance it. They used an ARM because they could not afford to use a fixed interest rate mortgage. And they could not qualify for a fixed rate loan either. And with tighter lending standards other than LTV limits, they will have even less chance to qualify for a fixed rate loan now. Raising LTV limits does not help affordability. It just enslaves a few more folks a little bit longer.
 
Yeah I don't know that many will walk...why ruin your credit, rent, and be in such an uncertain credit position for the next 5+ years if you have a chance to keep the home you plan to live in long term? I'm sure there are many here who would crunch the numbers and decide that walking away is in their best interests. But the greater majority out there will likely jump at the chance to keep their home and not uproot their family. It's a chance at a fixed payment for the next 30 years. If they can afford the payment, they may not care about the neg equity.



Nevertheless, this isn't exactly the sweeping change that will help everyone. But it may just keep a few homes from turning into Graph's little red/green dots.
 
[quote author="ABC123" date=1247629307]I don't think people will walk if their payments are low enough for them to keep postponing the inevitable.</blockquote>


The statistics show that people walk at a high rate once they fall underwater. The only reason the program was extended to 125% LTV was so the lenders could squeeze a few more payments out of people before they give up.



People who are underwater only keep making the payments if they believe they will not be underwater at some point in the not-too-distant future. Denial can only be stretched so far before people give up, particularly when their payment may be "affordable" but it is significantly larger than renting.
 
[quote author="Cuatro" date=1247636086]Yeah I don't know that many will walk...why ruin your credit, rent, and be in such an uncertain credit position for the next 5+ years if you have a chance to keep the home you plan to live in long term? I'm sure there are many here who would crunch the numbers and decide that walking away is in their best interests. But the greater majority out there will likely jump at the chance to keep their home and not uproot their family. It's a chance at a fixed payment for the next 30 years. If they can afford the payment, they may not care about the neg equity.



Nevertheless, this isn't exactly the sweeping change that will help everyone. But it may just keep a few homes from turning into Graph's little red/green dots.</blockquote>


The majority did not plan long term, evidenced by their purchase and the choice of mortgage. They bought because they thought this would be their last chance to buy and they would double their money, (down payment), in one year and pay back their parents whom they borrowed the down payment from.
 
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