The Mortgage Fix: Who Won’t Be Helped

Yesterday, we touched on what mortgage bailout plan criticisms many economists, politicians and industry members have expressed. Much of the concern surrounds the plan’s scope and schedule, which some say won’t help enough homeowners in enough time.

And now, three days after the initial announcement, some confusion still surrounds who exactly will benefit from the rate freeze and other plan breaks.

But the bigger question is: Who won’t?

• Interest-only loan holders. Borrowers with 2-28 and 3-27 loans, in which typically just the interest is paid for the first two or three years before switching to paying principal and interest for what’s left of the 30-year term, often see gigantic rate rises, according to CNNMoney.com. Also, 80-20 loans, which combine two mortgages to pay for a home and are often used to avoid paying mortgage insurance, are in danger–the second loan especially.

• Low equity homeowners. People who own investment properties are out of luck–homeowner occupation is a requirement. Homeowners must have at least 3 percent equity in their property, according to Bloomberg, which rules out troubled borrowers who did not put any or much money down.

• Those who don’t qualify for FHA loans. In President Bush’s radio address to the nation Friday, he discussed FHA Secure, an initiative that will give the Federal Housing Administration more flexibility in offering homeowners with good credit history refinancing options. According to Bush, the FHA has helped 35,000 people refi in three months, and it expects to help more than 300,000 in the coming year.

But the FHA loans aren’t going to be for everybody–and a lot of people in this country have bad credit.

Information released Friday by the Federal Reserve showed that revolving credit, which includes credit card debt, grew at a rate of 8.3 percent in October, after a gain of 6 percent in September and 10.6 percent in August.

Credit card debt has been on the rise in the past few months as home refinancings have declined: People who were used to pulling money out of their home equity for needs now have to borrow however they can, including using credit, the Associated Press reported.

• And …. all of us. Another possible victim: homeowners who can’t avoid their resets, who may have to help absorb the cost of the freeze losses. But they aren’t the only ones! Homeowners paying less on their mortgage loans means financial losses for Wall Street, pension funds, mutual funds: In short, everyone could be affected, according to BusinessWeek.

Still have questions?
This article, from MarketWatch, lays out the plan in a simple Q&A format.