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Some potentially good news for those looking to refinance existing investment property loans
In his State of the Union speech last night, President Obama offered up a new proposal for helping the current housing crisis. While designed specifically for home owners, property investors who rent out part of their homes could take advantage of the new legislation if it were to get Congressional approval.
The hallmark of the new law would be to help out those whose mortgage debts are greater than the value of their properties. The program would benefit those who have continued to make payments on their existing mortgages, whose properties are not already in foreclosure proceedings, and who currently do not have loans backed by the government.
A potential windfall for some property investors
On the surface, Obama’s latest proposal appears to be a boon for property investors already living in their own multi-family homes that are currently under water, whose mortgages are held by private companies. Eligibility for refinancing existing loans that are held by either Freddie Mac or Fannie Mae was increased last October to help those property owners whose homes were already under water. And those changes did not require any Congressional approval. However, this proposal does, since the loans will be backed by the Federal Housing Administration (FHA).
Many owner-occupied property investors have taken advantage of historically low mortgage rates by refinancing their investment property loans in the past year. But others are still unable to do so because they don’t qualify for refinanced mortgages, due to their mortgages exceeding the value on their properties.
The new proposal by Obama will require legislation since the FHA is currently prohibited from making refinanced loans on properties that exceed the value of the owner-occupied property investor’s house. These types of loans are inherently of greater risk, mainly because the property owner has no further equity remaining in his house. So if the FHA were to not be paid back on any new loan due to this proposed legislation, taxpayers would have to bail out the FHA.
As part of the new law, and since the FHA currently has so few reserves, Obama is proposing that any potential default costs due strictly because of this program be covered through new fees to be levied on the banking industry. The Republican-controlled Congress will be a large obstacle in getting this legislation passed given the current antagonistic political climate in Washington. For now, it’s wait and see…
photos courtesy of outcomemag.com, articles.sfgate.com, justinperry.net, myweathertech.com