Our "Appreciating America" Plan
"Appreciating America" is a national plan to help homeowners and lenders whose property is in danger of foreclosure due to negative home equity and/or an ARM resetting to a much higher rate. The goals of this proposed plan are to:
- Prevent foreclosures
- Eliminate or reduce lender write-downs
- Provide real refinancing options to homeowners
- Stabilize property values
- Protect the economy and liquidity
The Problem
Many homeowners in sub-prime, and hybrid and option ARMs, which have already adjusted or will shortly, can’t make the new payment; and can’t refinance due to lower property values, unaffordable debt-to-income (DTI) ratios and/or more conservative current underwriting guidelines. The Economic Stimulus Act, which temporarily raised the conforming and FHA loan limits (up to $729,000) helps to a certain extent, but loan-to-value (LTV) and DTI issues still exist with these higher limits. Currently, these increased loan limits expire on December 31, 2008. So, any mortgages in excess of traditional FHA and Fannie Mae guidelines need to be addressed immediately.
This all adds up to a situation where defaults and foreclosures have become all too common. There are no winners, only losers – the borrowers, the servicers, the investors and the economy.
A few programs such as Hope Now Alliance have tried to provide a solution, but they help too few in need of assistance. Plus, regardless of the plan offered, the FHA and FHASecure programs are still in need of modification to assist those homeowners most in need. It’s a situation that only stands to worsen. And without a comprehensive plan, which addresses all these issues, it will.
The Solution
Under our proposed Appreciating America plan – created by our Chairman and CEO, Nicholas Bratsafolis – homeowners will be eligible for an FHA-insured first mortgage equal to up to 85% of the appraised value of their home and a second Appreciating America shared appreciation mortgage for the remaining balance of the current mortgage. No monthly payments will be required on the second mortgage, and the first mortgage would offer an affordable monthly payment, which prevents financial ruin and foreclosure for the client. After a defined period of time, the second mortgage is paid off to the lender with the lender and client sharing in any appreciation on the home. The bottom line is that:
- The homeowner receives an affordable monthly payment, and incentive to maintain
and improve the property.
- The lender gets to share in the future appreciation of the property, and does not
have to write down or modify the loan.
- Both parties significantly reduce the risk of foreclosure of the home.
An Example Of Appreciating America At Work
- Homeowner begins process of refinancing outstanding mortgage(s) in accordance with established FHA guidelines regarding loan-to-value (LTV) and debt-to-income (DTI) ratios. The loan is fully supported by sufficient income, LTV limitations and tied to past mortgage payment history.
- Original Mortgage(s) = $200,000
- Current Property value = $180,000
- Homeowner qualifies for a new $153,000 FHA first mortgage (to include closing costs and FHA insurance premiums based on 85% LTV) with existing servicer taking a $47,000 shared appreciation Appreciating America second mortgage.
- Current Mortgage holder(s) get immediate return of $153,000 (less closing costs and mortgage insurance premium).
- The $47,000 balance (plus closing costs and mortgage insurance premium) that servicer is owed becomes a shared appreciation Appreciating America loan, secured by the property but with no payments due. Interest would accrue at a reasonable rate of 6%.
- The property appreciates 3% per year over the next five years and is then appraised at $209,000. At this point, the homeowner will qualify for a new FHA mortgage of approximately $203,000. The profit of $56,000 (difference between $209,000 and $153,000) would be split as follows: $16,800 to the homeowner and $39,200 to the second mortgage holder. The remaining principal balance owed on the second mortgage, plus any accrued interest, would be forgiven at that time.
The Take-Away
The pieces are close to being in place to help both homeowners and lenders avoid foreclosure on those homes which are worth less than the original mortgage balance and are in need of refinancing due to a resetting ARM. We’ve already waited too long to step in and help people keep their homes. The time is now to make a difference. And with the Appreciating America plan, we’ve proposed a tool that could do just that.
If this scenario depicts your situation, please give us a call at 1-800-734-REFI. We have the desire to help you turn things around and keep you where you should be: in your home.
