Moody’s Economy.com estimates nearly 13.8 million of the 52 million U.S. homeowners, almost 27 percent, owe more than their homes are worth after many months of declining prices. So what does the Obama plan say and how will that affect title insurers?
The Homeowner Affordability and Stability Plan anticipates slowing 7-9 million foreclosures. One part of the plan would be to refinance mortgages on primary residences insured by Freddie and Fannie whose values have sunk below the mortgage balance. The plan would make the lender responsible to lower interest rates so that a borrower’s monthly mortgage payment is no more than 38 percent of his income. The government would then pay to lower that even further, down to 31 percent of the borrower’s income for a period of five years. The rate would then progressively increase to the original respective loan rate. The program would not be available to real estate speculators, for second homes, investment properties or “flipped” houses.
Benefits For the Borrowers:
This would significantly reduce monthly payments. Under the plan, not only will the borrowers amortize their loans quicker, but they will also receive an incentive for making timely payments, receiving principal balance reductions up to $1,000 each year for 5 years for good credit habits.
Benefits For the Lenders/Servicers
· Servicers could receive up-front fees of $1,000 for each eligible modification meeting guidelines
· They would also receive “pay for success” fees — awarded so long as the borrower stays current on the loan — up to $1,000 each year for three years.
· Another incentive offers mortgage holders $500 paid to servicers, and $1,500 to mortgage holders, if they modify at-risk loans before the borrower falls behind in payments.
· A $10 billion quasi-insurance plan will insure lenders against falling values on modified loans, linked with declines in the home price index, as an incentive for lenders not to jump the gun on foreclosures due to fear of the continuing drop in home values.
· Clear guidelines and rules for loan modifications for all loans owned or guaranteed by the Feds, including Ginnie, Fannie, Freddie, FHA, VA, etc. would be established
Congress is also considering allowing bankruptcy judges to rewrite terms of mortgages so long as the homeowners commit to make payments and stay in their homes.
So what does that mean for a title insurer? My bet is the regulations will provide that mortgage modifications will not require any type of endorsement to existing loan policies, leaving title companies with either no role in the process, or simply that of a loan modification signing agent.
Source: White House Press Office