FAQ: Paulson bailout plan and mortgages
What is the Treasury asking for?
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The Treasury is asking for $700 billion to buy, own and sell mortgages and mortgage-backed securities. Under the Treasury’s proposal, the Cabinet department would be able to buy these assets, sell them and use that money to buy more. The Treasury would have a two-year window to buy securities, beginning with the enactment of the law that would grant the Treasury these powers.
Will I still be able to get a mortgage?
It depends upon what type of loan you want.
Mortgages can be broken down into 3 types:
•Conforming mortgages. Home loans for $417,000 or less that meet guidelines devised by Fannie Mae and Freddie Mac, the government-controlled housing finance giants. The guidelines require borrowers to have good or excellent credit histories, and to have some equity in their houses — either by making a down payment (when buying a house) or by having a house that’s worth more than the amount borrowed in a refinance.
Mortgages are likely to remain available for qualified borrowers who get conforming loans, as long as they have sufficient equity. To qualify for conforming loans, borrowers might need to have equity of at least 5 percent or sometimes 10 percent or even 20 percent. The amount of necessary equity depends on where the home is, whether it’s a condominium and other factors (such as credit history).
People who need to refinance, but owe more than their houses are worth, will not be helped by the powers the Treasury seeks. The Treasury’s proposal isn’t designed to bail out upside-down homeowners.•Jumbo mortgages. Home loans of more than the conforming limit. The jumbo limit varies, depending on location. In some places, it’s any mortgage of more than $417,000. In expensive markets such as Los Angeles, it’s a loan of more than $729,750. In some places, the limit is in between.
Lenders say jumbo loans, when available, have high rates and fees. This is a result of the credit crunch. If the Treasury’s proposal goes through, jumbo loans might become more available and affordable. There’s no guarantee of that, though.•Mortgages insured by the Federal Housing Administration. Loans for people who have so-so credit histories or who have down payments of only 3 percent or so. Those loans remain available for purchasers and for refinancers who can jump through multiple qualifying hoops.
Help! I’ve fallen behind on my mortgage and I can’t get up! Is the Treasury going to help me?
No.
The Treasury plan is a bailout for financial institutions, not for homeowners who are in danger of losing their homes in foreclosure.
However, Treasury Secretary Henry Paulson contends that the plan will help all homeowners in the long run.
“The biggest help we can give to the American people is to stabilize the financial system right now and prevent it from clogging up,” Paulson said Sunday in an interview on ABC’s “This Week With George Stephanopoulos.”