notes aug 4, 2008
August 4, 2008 § Leave a comment
I sense that the economy is worse by at least two two months than what is reported. From http://calculatedrisk.blogspot.com/
Via L.A. Land, we are offered this “convincing” criticism of the new housing bill’s FHA program, known far and wide (or at least in the text of the bill) as “Hope for Homeowners,” by mortgage broker Lou Barnes:
The new housing assistance bill, dismissed here briefly last week, deserves a more thorough hatchet-job.
It’s centerpiece is a $300-billion FHA loan guarantee (not money) to refinance under-water home “owners.” Consider a Bubble-Zone victim who bought a $200,000 home five years ago, made a 5% down payment and got a 5-year interest-only ARM for $190,000. The home has fallen 25% in value to $150,000. She has made interest-only payments since, and her $190,000 loan is entering amortization reset.
Her rate is not bad, 5.50% even after adjustment. However, her payment will jump from $871 to a killing $1,167. To her rescue, the bill’s “Hope for Homeowners.” In the land of unfortunate acronyms, gotta call it HoHo.
HoHo provides for a write-down of the mortgage to 90% of current market value, to $135,000, plus a 3% refinance fee to the FHA, $139,000 total. HoHo further provides a 1.5% annual surcharge; added to 6.50% current market equals 8%, amortized for 30 years is $1,020 per month. Better by a little, possibly affordable, equity negligible, pride failing. Then there’s HoHo’s anti-equity kicker: when the place appreciates in value (how many years ahead?), and she either refinances off the 8% or sells, HoHo will take half of any appreciation. I bet HoHo won’t split costs.
While she considers HoHo humiliation, a new renter moves into the house next door, identical, rent $700