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Re-Fi Plan Could Target Million of Underwater Borrowers

Timothy Geithner, the Treasury Secretary, declared that he supports the strategy designed by Oregon senator, Jeff Merkley. Basically, this plan includes a short termed government-backed trust that is going to be extremely helpful for underwater borrowers. These 8 million individuals will be able to refinance with no taxpayers’ cost and with low interest rates.  This special plan was created for borrowers who meet underwriting criteria and who are current on their payments. For this strategy it doesn’t matter if the federal government guarantees the mortgages. The plan offers 2 possibilities. It can help the underwater borrowers regain equity or it can lower their monthly payments.

Merkley declared that a couple of years ago, the American government acted boldly and quickly to save the financial institutions. At the same time, the government hasn’t done almost anything for numerous American families who cannot pay their mortgage rates. Merkley added that there are millions of citizens who have to pay high-interest mortgages. This number is nothing but an anchor for the economy. If the U.S. government wants to see a recovery in the economy, it has to make a plan for these families to refinance.

The plan will benefit from the help of the FHA (Federal Housing Administration), Federal Reserve and Federal House Loan Banks, and it wants to rebuild the American Homeownership Trust. If a mortgage meets the standards of the plan, the trust is going to buy that mortgage. The mortgage must come from a private lender. Overall, the program will bring profit to the American Treasury. The profit will come from the homeowner’s interest and the borrowing costs.

The plan allows borrowers to choose from 3 options. Also, they must refinance within 3 years. So, they can opt for the so called 2-part mortgage. The first mortgage is 95% of the property’s value and the second mortgage is softer and it is meant to balance the cost.  The second mortgage does not require payments and does not accumulate interest for 5 years. Therefore, it lowers the monthly payments. Additionally, there is the 15-year mortgage that has an interest rate of 4%. This way, the borrowers will be able to quickly rebuild equity. Lastly, borrowers can choose the 30-year mortgage. This one comes with an interest rate of 5% to lower monthly payments.

Over 700,000 homeowners took advantage of the rising home prices and regained equity. Still, there are more than 10 million borrowers who are underwater. Homeowners cannot sell their properties because of the negative equity. For this reason the home inventory has seriously declined. The restricted supply has increased home prices, but has limited home sales.

The Realtors’ National Association supports and applauds the proposal made by Merkley and calls it the innovative approach that the United States needs to take in order to achieve housing recovery. The Senator started a pilot program so as to see if the plan works. Fortunately, the program doesn’t need legislative action and can be implemented right away.

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