Wednesday, November 12, 2008

Help for a few troubled borrowers

The Federal Housing Finance Agency yesterday announced a mortgage relief/refinancing plan for troubled borrowers who have mortgages backed by Fannie Mae and Freddie Mac.

The plan would help borrowers who have missed at least three mortgage payments, who are owner-occupiers, and who have not yet filed for bankruptcy, renegotiate their mortgages down to a level where payments would only be 38 percent of their monthly gross incomes.

Given the state of the housing market and home finances, such renegotiations are overdue. The plan is a good start and should provide some help. However, because of the limited coverage of the plan, we shouldn't expect much help in the broader market.

3 comments:

Jeffrey Sykes said...

Dave: Enjoying the posts on ideas to alleviate the economic crunch.

One question. What is the standard percentage of gross income used for housing costs (mort./rent)?

I was very frugal when I bought a home and my cost is about 22 percent. That 38 percent would be high for me, but I hear some talk from a mortgage underwriter friend about people underwater with outlandish percentages.

What's the average for a homeowner?

Jeff

Dave Ribar said...

Jeff:

In 2004, the median household with home-secured debt paid just under a quarter of its gross income (24.2%) toward all debts (source: see FN47, p. 33).

38 percent is a very high ratio, but much lower than what the households are currently paying. I'd have to do some digging to see where the magic "38" comes from.

Jeffrey Sykes said...

Dave: Thanks for the answer. Very helpful.