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Surprise! It's a Bailout for Vacation Homes, Too

I'm shocked that people aren't jumping all over the revelation that the no-equity mortgage refinance program unveiled yesterday is going to be available for vacation homes and one-to-four unit rental properties as well as for owner-occupied homes. The Post's Renae Merle reported this detail, which she found in the program rules published by Fannie Mae and Freddie Mac.

The refinances are available to borrowers who bought their properties using Fannie or Freddie loans and who are not behind on their payments, but who don't have enough equity to qualify for an ordinary refinance. It's half of a two-part homeowner bailout program. The other half encourages loan modifications that can reduce interest rates and payments for borrowers already in default or near foreclosure. That loan-modification plan is restricted to a borrower's primary residence.

But President Obama never made such a distinction when he first announced the broad outline of his plan last month. "The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly, by refinancing loans for millions of families in traditional mortgages who are underwater or close to it," Obama was quoted as saying in a Feb. 18 Post story. Perhaps we should have read "close to it," as "close to the water" instead of as "close to underwater."

Then again, a foreclosure prevented is a foreclosure prevented. But a bailout for vacation-home owners and small investors is something I simply did not expect to see.

The Weekend Poll:


By Elizabeth Razzi  |  March 6, 2009; 6:00 AM ET
Categories:  Foreclosure , Mortgages , The economy  
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Next: Refinance Opportunities Should Last a While

Comments

I just saw this article and was astonished; but when I read it it started to come together. I saw that the mass majority of people are against this plan but I ask why. It really is aimed at helping home owners in this difficult time. I can understand disagreeing with the vacation homes; that in my opinion is a little much. However giving help to those that have proven that they are responsible is a great way to close up the open ended debt that the banks/ crediters have built up. But I can be wrong just thought I could stir up a discustion.

Posted by: ilovemywife0602 | March 6, 2009 7:15 AM | Report abuse

Well, this might help those of us who moved to new jobs in other locations, and couldn't sell a house before we left.

Posted by: gingy | March 6, 2009 1:48 PM | Report abuse

I'm surprised too, but I think it's important to remember that the goal of the program is to stabilize the housing market and allow supply and demand to find some sort of equillibrium. Because the broader market includes both investment properties, second homes it's important to shore these elements up too, but allowing homeowners to refinance thereby keeping their properties out of the current market (either as a foreclosure, short sale or otherwise). I actually applaud the administration for adding these.

Think of it this way, if they hadn't been added, you have a situation where a loan already backed by Fannie or Freddie is approaching upside down status and is thereby much more prone to default. By allowing the owner to refinance into a more comfortable cash flow situation, it allows people to wait out the bad part and let the market return to a point where things get stable again. This is especially crucial in the second home market (I believe) where owners are more sensitive to changes in the economy for their rental income. My way of looking at it is that Fannie and Freddie are basically decreasing the risk of their portfolio overall by allowing people to refinance mortgages that it was already on the hook for liability-wise anyway. That makes good sense for all of us.

Posted by: AlexandriaAgent | March 7, 2009 7:07 AM | Report abuse

The devil is in the details...

I thought my investment property qualified, but it doesn't.

Freddie Mac says:

occupancy requirement-

* 1- to 4-unit primary residence.
* 1-unit second home, provided the mortgaged being refinanced was underwritten and sold to Freddie Mac as a second home mortgage.
* 1- to 4-unit investment property, provided the mortgage being refinanced was underwritten and sold to Freddie Mac as an Investment Property Mortgage.

So, if you converted your primary residence into an investment property (i.e. did not get a an investment property mortgage), you are not eligible.

Just my two cents.

Posted by: palinger | March 7, 2009 10:53 AM | Report abuse

Palinger
--
You are not eligible under the existing bailout regs, but you may well be 'otherwise eligible' depending on your credit, lending institution, etc.

States like Maryland have recently passed legislation doing away with prepayment penalties for residential mortgages. I have not checked to see if it also applies to commercial mortgages, but I would doubt it.

You don't indicate what state you are dealing with, so I can't suggest a work around, but I would suspect that there are some.

There is also a tendency not to want to use a Realtor to save on commissions in times like these, but in times like these an experienced Realtor is worth EVERY PENNY they charge.

Posted by: brucerealtor@gmail.com | March 11, 2009 12:26 AM | Report abuse

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