The Boston Globe business section has a fascinating article on a foreclosure bailout plan the state of Massachusetts is sponsoring. Here are the key elements:
- A borrower must not be any more than 60 days delinquent on their mortgage.
- The loan offered will be a fixed rate refinance at approximately 7.75%.
- There are income limitations - the Boston area limit is 135% of the median income ($108K) while the rest of the state is 125% ($98K).
- The value of your home can be no more than $417K for a single family home, and $645,300 for a three family.
- Banks must share the pain. If a borrower purchased a house for $250K and borrowed $250K, and the value of the home has since declined to $230K, the state will only refinance $230K. The lender is expected to take a loss on the difference.
This is an incredibly intriguing proposal from where I stand. According to the article, there will be enough funds to help refinance approximately 1,000 mortgages. If you are facing a situation where the walls are closing in and you are struggling to make your mortgage payment, this could be the answer. Also, if you live in one of the neighborhoods where a house is facing a potential foreclosure, this can help the values in your area. It isn't a magic fix for values, but generally speaking distress sales (foreclosure, divorce, sudden relocation, etc) are more likely to sell below market value.
The major issue that is mentioned in the article (that I completely agree with) is that the lenders will be required to take a loss in many instances. I would think in a lot of cases it will be in the lender's best interest to accept a smaller loss in lieu of foreclosing. What happens if the lenders calculations tell them that they will be better off foreclosing than accepting what the state is offering? This is where it gets sticky. My guess is that a lot of lenders will go along with the program in order to avoid the bad press, which would not be soon forgotten in Massachusetts. People in MA tend to have good memories. Just ask someone about Bill Buckner or Bucky (bleeping) Dent.
If you have found yourself in a tough situation, this option worth exploring even if you aren't sure if you qualify. Please call NeighborhoodWorks America at (888)995-4673 as they are the organization handling things for Massachusetts.
If all else fails, please give me a call and I will help you navigate the situation. If you are unable to keep your home I have a good network of Realtors that have experience in short sales and I would be happy to give you a qualified referral.