George W. Bush signed the Mortgage Relief Bill to assist homeowners in jeopardy of losing their homes to foreclosure. This bill allows homeowners, who qualify for FHA mortgages, to be refinanced at a lower principal in a government-backed mortgage and also requires the homeowner's existing lender to agree to a "buy-down" on the mortgage instead of proceeding with the costly foreclosure process.
What does the Mortgage Relief Bill do for the average Ohio homeowner in jeopardy of losing their home to foreclosure?
If a home was purchased in July, 2005 for $150,000 with no money down at 5.5% fixed-rate interest (Monthly payments without PMI approximately $850). If all payments were made on time up to May, 2008 with three payments currently behind, the current principal would be approximately $146,000.
With the current real estate market, lets say the current market value of the home is approximately $135,000, a loss of 11% in past 3 years. If the prior lender agrees to the right-down, the government-backed mortgage might be reduced to $131,000 (97% of Value) with a current FHA rate of 6.58%, therefore reducing the monthly payments approximately to $834.
The Mortgage Relief Bill Savings = $16/Month
There may be additional tax penalties for the buy-down as it is considered income. Homeowners who choose the buy-down option with their mortgage may be in for a surprise come tax-time next spring. The signing of the Mortgage Relief Bill was not met with the expected media fanfare because it does very little to help homeowners.
In the coming months, thousands of Ohio homeowners will be looking to refinance under the Mortgage Relief Bill. The refinancing process will have different procedures than in the past.
The mortgage-meltdown has also changed how the appraisal is ordered.
In the past, a mortgage broker would typically call an appraiser and ask for a "precomp" or a general idea of the estimated value of the home. If the "precomp" from one appraiser was below the targeted value needed for refinancing many mortgage professionals would call numerous appraisers to "shop-around"
Ohio Senate Bill 185, effective January 2007, made this type of activity a 5th degree felony to instruct or coerce the "independent judgment" of the appraiser.
The recent Fannie Mae/Freddie Mac-Andrew Cuomo agreement requires the appraisal to be ordered by the lender and not the mortgage broker or originator, eliminating the possibility of an appraiser to "hit a value".
The appraisal will be one of the final steps in the refinancing process. If the homeowner is unsure of current trends or similar neighborhood sales, the target value needed on the appraisal may be highly overstated.
Some mortgage professionals use free online valuation sites such as Yahoo, Zillow or Domania to determine neighborhood sales activity, however, much of the information is dated and does not show a true current "snapshot" of the market. Mortgage underwriters are now requiring appraisers to use much more recent sales and neighborhood listings to support market conditions.
Automated Valuation Models or AVM's are more detailed and higher-cost, computer-generated reports which use statistical models to determine value ranges. AVMs are much more accurate in homogeneous areas with large numbers of similar homes, however, are rarely accurate in more suburban or rural areas.
"There are a lot of resources on the Internet for homeowners to use, we have created a site that easily guides you to the information that you need." said Greg Mahan, co-founder of IndependenceData.com.
"IndependenceData.com has over 115,000 Ohio-based inks and even teaches you how to use the resources. If more people knew how to use these systems, there would be a lot less question of what a home is really worth," said Mahan.
"Most of these online resources have only been around for a couple years, so most people don't know how to effectively use them. We've created IndependenceData.com to change that. We even provide low-cost consulting services to make sure that you know about your neighborhood sales before you spend $300-500 on your appraisal," said David Marihugh, Co-Founder of IndependenceData.com.
The Mortgage Relief Bill may help thousands of homeowners remain in their homes, but the road may be a bit bumpy. Mahan ended, "It all comes down to education, the homeowner will be truly empowered through education."
