Obama mortgage plan divides Oregon lenders - Portland Business Journal:

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The Salem-based and the Washington, D.C.-basedc say members should strongly consider joinint the voluntary plan unveiled by President Barack Obamqalast week. The Homeowner Affordability and Stability Plan could spur bankd to modify loans when homeowners face as well as alloww refinancing options for those who have paid less than 80 percent oftheirf home’s value. It would also allowe judges to modify mortgage terms for homeowners who filefor However, area lenders aren’t sure whether voluntarily reducing interest rates, to help ensure that homeownersx don’t spend more than 31 percentf of their gross monthly income toward thei mortgages, is more cost-effective than initiating foreclosurde proceedings.
At least one industry professional said theincentives won’rt work. Steve Emory, senior loan officer with Lake Oswego-baseds lender Pacific ResidentialMortgage LLC, point s to such programs as the Federal Housinf Administration’s Secure Loans program, which President Georgs Bush’s team said would provide mortgage insurance to 240,000 homeowners but in actualit served fewer than 4,000. “It’s one of these program they’re saying will help at least 5 million peopleand it’ll only help a few thousansd because lenders have to agree to go down to the 38 perceng debt-to-income ratio,” he said. “They won’t do that.
They’ll forecloswe instead.” Many local bankers say they’ll fully digest the plan when more detailws emergeMarch 4. Homeowners can file program applications thatsame day. The plan aims to help as many as 9 millio n Americans restructure or refinancetheir mortgages. Calif.-based real estate researcher RealtyTracx Inc. said one in every Oregomn 357 homes faced some sort of foreclosur e activityin January, the nation’s fifth-highest defaulty rate. Nationally, foreclosures increased by 81 percentr from 2007to 2008.
Two sources woul d fund the $75 billion plan: The Troubled Asset s Relief Program wouldprovide $50 billion while $25 billiohn would come from the Fannid Mae and Freddie Mac loan guarantee programs. “I thin k a number of banks will want to participate in this prograjmbecause it’s a balanced said Linda Wilhelms Navarro, president and CEO of the Oregon Bankers Association. “It’s flexible, it has a lot of facetzs and most of those arepretty constructive.
” The America n Bankers Association, in recommending that lenders “take a at the program, notes that the plan sharesz risks between the governmental and private Homeowners applying 43 percent of their incomes toward mortgages, part of theier debt-to-income ratio, would see their interest payments reduced enoughh to knock that level down to 38 percent. Government subsidies could then reduce the ratio to 31 Jim Eberle, an ABA believes the final rules won’t force banks to modifgy loan terms if it means pushinfg their mortgage interest rates belowa 2 percent. The floor could prevent homeowners withuntenabld debt-to-income ratios, say, higher than 50 percent.
Participating banks could receive incentives of upto $9,500 per modifiesd loan, over five years while new loan guaranteee for participating lenders could also encourage banksx to participate, said However the industry hasn’t analyzed whether the program would make it cheaper to foreclose it costs lenders $60,000 each time they foreclosew a home — or modify troubled loans. Angela Martin, director of Our Oregon’as economic fairness campaigns, said establishing acceptablew debt-to-income ratios in the low 30 percent rangwe is agood start.
“It’s actuallyh a little frustrating because this type of affordability analysias was missing fromthe beginning” of the mortgag market upswing, she said. Martinj believes the plan could help homeownerdsescape “negative amortization” mortgages allowing payments that don’g even cover monthly interest amounts.