Bail Out and Mortgage Impact

Recently we have received many calls form customers concerned about how the recent “bail out” legislation will impact their mortgage. The quick answer for the average home owner is that nothing will impact their mortgage other than their failure to make their monthly payment. If a bank or your mortgage company goes out of business, nothing can change on a mortgage other than where the chech is mailed. Interet rate, due date, balance and loan term all remain constant.

Now, for the bigger question of “Will this impact a borrower’s ability to get a new mortgage, that question is a bit more complicated.

First of all, recognize that the legislation that is called a “bail out” refers to the banking liquidty crisis and for the most part all it does is stablize key financial instututions.

From our perspective this act of congress has little impact on the current mortgage crisis. We feel strongly that the only solution to the mortgage crisis is for the government through FHA, Fannie Mae, and Freddie Mac to “warrant values” of homes.

What do we mean by this? Basically we are calling for congress to guarantee the value of the property no matter what the appraised value comes in at. Many home owners are paying their mortgage but when they go to refinance, because of decling values, they cannot qualify for current mortgage guidelines on loan to value ratios. In most cases, although the home owner qualifies from a debt to income perspective the loan to value ratio disqualifies the client and they end up stuck with a higher rate and thus higher payment than they otherwise would have been able t get. 

 If the goverment would warrant values borrowers could refinace to better loans at lower rates. This would reduce the number of foreclosures and thus drive home values upward.

Without additional mortgage releif the “bail out” is not going to be the last one we see. Rather than bail out financial instututions, Columbia Funding Mortgage calls on our governmental leaders to simply underwrite or “warrant” value to bring a quick end to this crisis.