If you made responsible financial decisions over the last several years and were hoping there may be something in Obama’s mortgage bailout for you, keeping hoping. As far as I can see there is nothing for my family in the bailout (even after my wife’s layoff earlier this week), and you’ll likely come to the same conclusion. I hadn’t seen the details of the bailout program before this morning (summary, full-text), but here are the basics (with a few limitations).
Under the program, the goal is for lenders to reduce what they refer to as the “front-end DTI” to 31%. Front-end DTI is the ratio of the total of principal, interest, taxes, insurance, and HOA/condo fees to monthly gross income. For example, if you made $72,000 gross a year, your monthly gross income would be $6,000, making the goal to reduce your total monthly payment to no more than $1,860.
The actual modification is done in three steps. First, the lender will reduce the interest rate in increments of 0.125% until the 31% DTI target is reached, subject to a floor of 2%. If reducing the rate down to 2% still doesn’t get you down to 31%, then the loan term is extended to 40 years from the date of the modification. If that still doesn’t work, then some amount of the principal is forborn (deferred) to the end of the loan.
In addition to the loan modification, the borrowers will be credited up to $1,000 per year towards the principal balance for up to five years for making payments on time.
A provision that will eliminate many responsible borrowers from consideration is that you must certify that you do not have sufficient liquid assets to make your current payments. In other words, if you have any savings, this is counted against you. So have to be living on the edge to qualify.
Where the heck is my bailout?!? We hear so much about the suffering of those who made bad decisions (and in some cases, fraudulent representations) in getting adjustable rate mortgages, home equity cash-outs, and the like, but what about some love for those of us who live within our means and have saved diligently who now see the value of our investments and homes in the toilet as the beginnings of Obama’s grand socialist experiment continue to erode wealth? Those who made irresponsible decisions continue to be rewarded while those of us who followed what was “conventional wisdom” continue to be screwed over at every turn. At some point the rest of us are going to decide there is no point anymore and to just sit home all day in our PJs watching The Price is Right.