Are you underwater? Should the bank give you a break?
Underwater homeowners would get a lifeline of sorts under the Obama Administration's latest housing market rescue plan.
While interest rates have fallen to unbelievable lows, many homeowners can't refinance. After years of falling prices, they simply owe more on their mortgages than their homes are worth.
But underwater homeowners, as long as they have made all their mortgage payments on time in the past six months and meet a few other basic criteria, such as being gainfully employed, would be eligible for a new refinance product just rolled out by the Obama Administration.
The savings could prove substantial, with $3,000 in savings each year on a $200,000 mortgage that is refinanced from 6 percent down to 4.5 percent, according to this explanatory piece put out by the Associated Press.
Given higher home prices here in Greater Boston, that could amount to $6,000 in savings a year for a homeowner with a $400,000 mortgage.
An estimated 230,000 homeowners across Massachusetts are underwater on their mortgages, owing an average of $120,000 more than what their properties are actually worth now, CoreLogic reports. That's more than 15 percent of everyone who owns a home in the state.
It's a breathtaking gap, created in part by our crazy home prices. Nationally, underwater borrowers owe on average $65,000 more on their homes than they are currently worth.
All that said, there are a couple of red flags here.
First, is this simply a return to some of the loose lending standards that created the housing market mess in the first place?
The Christian Science Monitor raises some good questions on that score.
Basically, you can be drowning in debt, owning 50 percent more to the bank on your home than what it is actually worth, and still qualify.
Maybe you can blame the market, but maybe you overpaid in the first place.
In fact, you won't even face a credit check or even an appraisal.
That has the benefit of reducing closing costs, but it requires lenders to overlook some key areas.
But even if you buy into the concept, there are big questions as to whether it will actually work.
Like most of what we've seen from the Obama folks, the whole initiative may be set up to fail from the start, hinging on cooperation from the banking industry.
There are a few incentives thrown in to encourage lenders to play ball, but nothing to require them to make these loans.
I guess I wonder how many will be signing up.
