Refi plan would target 8 million underwater borrowers

Treasury Secretary Timothy Geithner says he likes the design of a plan proposed by an Oregon senator to establish a temporary government-backed trust that would allow about 8 million underwater borrowers to refinance at a lower interest rate at no cost to taxpayers.

The plan, proposed by Sen. Jeff Merkley, D-Ore., would be available to borrowers current on their payments who meet basic underwriting criteria -- regardless of whether their mortgages are currently guaranteed by the federal government.

The plan is designed to either lower monthly payments for underwater borrowers who owe more on their mortgages than their homes are worth or allow them to regain equity at a faster pace.

"Four years ago, the U.S. government acted quickly and boldly to rescue major financial institutions," Merkley said in a statement. "However, we have not done nearly enough for American families who are struggling with the downturn in the housing market."

Merkley said "millions of Americans are trapped in high-interest mortgages ... and it's a huge anchor on our economy. A bold solution to help these families refinance is the fastest way to get our economy back on track."

The plan calls for establishing a Rebuilding American Homeownership Trust through the Federal Housing Administration (FHA), Federal Home Loan Banks, or the Federal Reserve.

The trust would buy mortgages that meet the plan's standards from private lenders with revenue from government bonds sold to investors. The program is expected to turn a profit for the U.S. Treasury over its lifetime due to a roughly 2 percent interest spread between the borrowing costs on the bonds and the interest charged to homeowners, according to the proposal.

Borrowers would have three years to refinance into one of three options:

• a 15-year mortgage with a 4 percent interest rate, which would allow borrowers to rebuild equity at a faster rate;
• a 30-year mortgage with a 5 percent interest rate, which would lower a borrower's monthly payments; or
• a two-part mortgage with a first mortgage worth 95 percent of the home's value and a "soft" second mortgage for the balance. The second mortgage would not accrue interest or require payments for five years, thereby lowering a borrower's monthly payments.

While rising home prices helped more than 700,000 homeowners regain equity in their homes during first quarter, 11.4 million borrowers still owed more on their mortgage than their homes were worth, according to data aggregator CoreLogic. Because negative equity prevents homeowners from selling their homes, the available inventory of for-sale homes has seen double-digit declines this spring.

While restricted supply has shored up home prices, it has also constrained home sales, according to the National Association of Realtors.

In a statement, NAR said it "applauds and supports" Merkley's proposal, calling it, "exactly the innovative approach that our nation must take to ensure a sustained housing recovery."

Merkley called for a pilot program to test the proposal immediately, which he said would not require legislative action from Congress.

He suggested state and federal foreclosure prevention funds could be used to fund the program -- the federal Home Affordable Modification Program (HAMP), he noted, has used only $3.4 billion of the $29.9 billion allocated to it in the three years the program has been operational.

While current law prohibits using funds from HAMP and FHA's Short Refinance Program to establish new programs, Merkley claims in his proposal that "there are many common elements" between those two programs and the proposed program, which could be considered a modification of the current programs.

At a Senate Banking Committee hearing Thursday, Treasury Secretary Timothy Geithner agreed to look into launching pilot programs to implement Merkley's proposal, HousingWire reported.

"We like the way you designed it," Geithner told Merkley, who serves on the Senate Banking Committee. "It would help reduce the remaining pressures that housing has on the economy. It doesn't leave the taxpayer to pay for it."

For your real estate needs at the lake please contact the Spouses Selling Houses team. Until next time! Ebbie :).

Homeowner Scams Abound

Homeowners beware. The Consumer Federation of America has released its 2011 Consumer Complaint Survey Report, and one of the top five fastest growing consumer complaints is home improvement scams, which remains No. 3 on the top 10 list after automobile and debt-related scams.  Other real estate problems (timeshares, retirement communities) are new to the top 10 list this year.

Think you’re too smart to be a victim? The report includes eye-opening anecdotes of scams from among the 38 state, county and city agencies in 22 states that contributed to the report, with tips on how to avoid being scammed. They recovered more than $147 million on behalf of wronged consumers last year alone. So if you have a problem, don’t be shy about calling one of the consumer protection agencies listed on the Federal Citizen Information Center’s Consumer Action website.

Homeowners beware. The Consumer Federation of America has released its 2011 Consumer Complaint Survey Report, and one of the top five fastest growing consumer complaints is home improvement scams, which remains No. 3 on the top 10 list after automobile and debt-related scams.  Other real estate problems (timeshares, retirement communities) are new to the top 10 list this year.

Think you’re too smart to be a victim? The report includes eye-opening anecdotes of scams from among the 38 state, county and city agencies in 22 states that contributed to the report, with tips on how to avoid being scammed. They recovered more than $147 million on behalf of wronged consumers last year alone. So if you have a problem, don’t be shy about calling one of the consumer protection agencies listed on the Federal Citizen Information Center’s Consumer Action website.

Home security alarm scams
A 95-year-old Florida woman was convinced to sign a 5-year alarm system contract, although she already had an alarm system with another company. The Hillsborough County Consumer Protection Agency intervened; the alarm company canceled the $3,300 contract and refunded the money the woman had already paid.

Advice: Under federal law you have the right to cancel door-to-door purchases of $25 or more within three business days. If you’re not given notice of this right, the cancellation period continues.

Home furnishings never delivered
The Somerset County Division of Consumer Protection received 21 complaints from consumers who had paid more than $60,000 altogether at a New Jersey furniture store where the owner embezzled the money and never delivered the furniture. The business filed for bankruptcy offering little recompense for the consumers.

Advice: Pay with a credit card, which gives you the right to dispute the charges if the goods never arrive. Debit cards don’t necessarily offer this protection.

Retirement community fees
When a Pennsylvania woman moved into an assisted living facility, she paid an upfront fee of $170,100 with the assurance that 85 percent would be refunded if she moved out, but when she moved out, the facility said she wouldn’t get a refund until someone else bought her unit. The Bucks County Consumer Protection, Weights & Measures Office intervened, and she got back $168,644. The office found that in some cases, former residents’ units were being used as models, holding up refunds.

Advice: Review the assisted living or retirement community contract carefully, including how the entry fee is handled — before you sign it.

Timeshare troubles
The Louisiana Attorney General’s office is working on a multi-state action to get restitution and cancel timeshare contracts for consumers against Festiva, a timeshare company based in North Carolina but operating out of New Orleans. Consumers complained that they never received promised “prizes” and that “free” cruises ended up costing hundreds of dollars in fees. Consumer advocates are also reigning in folks who prey on people who already have timeshares, pressuring them to pay thousands of dollars to resell their unwanted timeshares, and yet another group that offers to recover fees that consumers have paid to timeshare resellers who have gotten no results. They take a fee and the consumer never hears from them again. An Ohio woman who paid $10,000 to timeshare reseller and resale recovery fee service got help from the Summit County Office Of Consumer Affairs to recover $3,000.

Advice: Don’t be pressured into buying a timeshare especially if the salesman says you have to decide immediately. Got a timeshare and want out? Talk to the company that manages the timeshare or a licensed realtor.

Rental rip-offs
The Orange County (Florida) Consumer Fraud Unit found scammers posing as owners of foreclosed properties, advertising the properties for rent and taking deposits of $2,500 on average from would-be tenants.

Advice: Rent through a licensed realtor, or check county records (a call to the tax assessor works) to make sure you’re dealing with the property owner.

For property at the Lake of the Ozarks,contact the Spouses Selling Houses team at lakeozarkforsale.com. Until next time! Ebbie :)