Who is Going to Help the Helpers?

Roger Schlesinger
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Posted: Apr 28, 2009 11:42 AM
Who is Going to Help the Helpers?

The President has divided the country into two camps not by political parties or ideology but by those who could need help and those who should be helping. It sounds biblical on the surface but doesn't exactly flow in that manner. It is actually a road map to “placate” (my thought not the President's) those who need help and punish those who have achieved and are the would-be helpers. It seems to cover all facets of the plethora of programs being proposed by the current administration to completely change our country. We are continually learning of plans and programs in all areas of government that are being examined and changed in ways that could help without hurting, but seem to miss the mark. Let me begin with mortgage financing and then move into other financial matters to make my case.

We are in a real estate crisis of epic proportions that could be alleviated quickly, but instead is being dragged on in many frustrating ways. A plan has been laid out in two parts to help stop the foreclosures. The plan has great details for both those in trouble and those who are failing and minuscule details for those who are in trouble but have made the determination to fight to the end. The plan also only helps those who have conforming loans (maximum $417,000). If you have missed your payments, are heading for foreclosure or are almost through the process, you can have your loan modified in size, interest rate and payment. The banks have been empowered to stop the problem in its tracks, being given financial help in this endeavor by the government. If you are failing (meaning paying more than the ratios say you should) or have a house that is considerably less in value than your loan and have interest rates well beyond today's average rates, but are now and have always made your payments, you need to have the luck of the Irish to get any relief at all. The question I get asked the most: "I have made my payments, I am underwater (house is worth less than the loan) and can't get help, yet those who haven't made their payments can get the help. Why should I keep making my payments?" What's your answer?

The government set up the tightest parameters I have seen for what we would consider "help" to those who have made their payments and stayed with property that is valueless at this time. Before I continue, I will not comment on whether any help should have been given to anyone or whether I believe this was the best way to help. I simply will state alternatives and let you decide. First you must have a Fannie Mae or Freddie Mac loan, a conforming loan that is generally a fixed rate loan. Then you must have a loan(s) of 80% to 105% of the current value of the collateral. That is very tight in a market that has been falling for at least a couple of years. In reality it is much tighter than that. If your loan falls in the 95% to 105% range you will be charged a point (1%) to get the loan. Should you have a second mortgage or HELOC (Home Equity Line of Credit), your only two choices are to pay it off or subordinate the instrument (put it behind the new loan). You will not be allowed to put it into the refinance. If your combined loan to value (first mortgage and second mortgage) exceeds 90%, you are charged 1.5 points to subordinate. The excess points can negate any of the savings the borrowers were seeking. So the real parameters of this program are 80% to 94.9% for those without a second mortgage; 80% to 89.9% for those who do have a second mortgage.

Those are the rules set up by the same government who has the following rules on an FHA loan or a VA (veterans administration) that will give you a streamlined refinance if you have made your payments on time and the loan balance is less than your original loan balance.

No credit reports, no appraisals, no qualifying again, nothing else! You simply give us your case number, we verify the payments and balance, and then the refinance to lower your payments to the current market is complete. The docs are drawn, you sign and you enjoy the new lower rate. These loans were set up with mortgage insurance as a cost of the program, and the mortgage insurance continues.

Why are we not helping everyone, and why not primarily those who have conforming loans who are in trouble for legitimate reasons, financial setbacks from loss of employment, illness or accidents, or those who took excessive risks, stretched beyond common sense or simply over stated their financial abilities? Why not come up with a realistic program for all conforming loan holders and a mortgage insurance program that will insure the lenders on jumbo loans as well. I say this because those who made their payments and those who hold jumbo loans are for the most part the "helpers" who will be called upon to help those in need with the programs coming down the pike from this administration.

The new tax laws are coming. I am hearing that those designated as the "helpers” haven't been paying their share, primarily from those who haven't been paying much or anything at all. Let's take a look at the "wealthy couple" making $250,000 a year. Presently they would be paying anywhere from $40,000 to over $55,000 in income tax, and about $14,400 to $18,300 in social security and Medicare taxes. Under the new plan, the upper bracket is raised about 4% but the employment tax picks up after stopping at about $100,000 at $200,000 and goes on forever without a cap. The "helpers" get an additional tax bill, not only on their income, but $7,650 per person per $100,000 in earnings over $200,000. This, of course, doesn't take into account state income tax (if any), county and local taxes, and when the fun stops, inheritance taxes on whatever they have left. If the present system doesn't create enough impetus for individuals to strive to "reach the impossible dream", what will the new system do?