Check out this interesting set of numbers from a recent article over at the San Francisco Chronicle:
A congressional proposal to refinance struggling homeowners into 30-year fixed mortgages works like this:
The FHA would refinance homes with mortgages for 90 percent of their current value, leaving 10 percent equity in each home. That equity would be split between the FHA, as its cushion in case of defaults or further market collapses, and the homeowner, to give some “skin in the game” as incentive to stay in the house.
Suppose you bought a house for $600,000 two years ago, putting no money down and it has lost about 16 percent of its value.
— $500,000 – home’s current value
— $450,000 (90 percent of current value) – the new FHA mortgage. Of that, $425,000 (85 percent of current value) goes to the lender and $25,000 goes to the FHA as a fee.
— The lender is now swallowing a total loss of $175,000, or 29 percent of the original $600,000 mortgage.
— $50,000 (remaining equity in the home) – split between FHA and borrower. When the home is sold, the FHA would get a share of any appreciation.
The real question is whether banks will actually go for this kind of offer. What must a borrower do to qualify? Answer are likely pending on these questions so stay tuned.