Support Under the Homeowner Affordability and Stability Plan: Three Cases
Family A: Access to Refinancing
In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.
Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000.
Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.
Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.
| Existing Mortgage | Refinancing | |
|---|---|---|
| Balance: | $199,584 | $203,575 |
| Remaining Years: | 27 | 30 |
| Interest Rate: | 6.50% | 5.16% |
| Monthly Payment: | $1,308 | $1,113 |
| Savings: | $196 per month / $2,347 per year | |
Family B: Access to Refinancing
In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.
Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000.
Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.
Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $4,000.
| Existing Mortgage | Refinancing | |
|---|---|---|
| Balance: | $337,460 | $344,210 |
| Remaining Years: | 27 | 30 |
| Interest Rate: | 6.50% | 5.16% |
| Monthly Payment: | $2,212 | $1,882 |
| Savings: | $331 per month / $3,968 per year | |
Family C: Eligible for Homeowner Stability Initiative
In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker – Mom & Pop Mortgage – sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.
Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.
Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house. Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.
Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.
| Existing Mortgage | Refinancing | |
|---|---|---|
| Balance: | $213,431 | $213,431 |
| Remaining Years: | 27 | 27 |
| Interest Rate: | 7.50% | 4.42% |
| Monthly Payment: | $1,538 | $1,132 |
| Savings: | $406 per month / $4,870 per year | |