The Financial Stability Plan: Take Two

More details have emerged regarding this particular piece of the stimulus package. I felt that some of the details were worth a correction on my part.

The affordable refinance program is only available to borrowers who have loans that are owned/securitized by Fannie and Freddie. This reduces the number available to utilize the program, in particular among minorities and low income households. Studies have found that minorities were much more likely to receive a sub prime loan, even if their credit qualified them for a prime one, than other groups. If the loan was such that is cannot be conforming, then it will not be purchased by Fannie or Freddie. As such a higher proportion of low income and minority borrowers will be excluded from the program. Indirectly the program states it will not work with any nonconforming loan, (since they are not purchased by Fannie and Freddie).

The loan modification program comes right out and says that nonconforming loans do not qualify....well...it says it in the Q&A for housing counselors (how many regular joes are going to dig that deep?). This means once again that a higher percentage of minority and low income borrowers will be excluded from utilizing the program due to higher incidents of nonconforming loans. This is a real shame, since the loan modification program targets loans before they go bad, a proactive move I approve of.

Not all of the news is bad news. One of my criticisms of the program hinged on the high dollar figure, Roughly three quarters of a million, that qualifying homes could have. By requiring qualified loans to be conforming this automatically adjusts by area, since conforming loans have a maximum limit set by FHA that varies from area to area. So, someone in Cache Valley with a $700,000 or even $400,000 home will not qualify. Their loan is above the limits, and is considered a "jumbo loan", therefore nonconforming and ineligible for either of the programs listed above. To see what the limits are for where you live look here.

So what do you think? Does the conforming limitation unfairly impact minorities and low income families who should have qualified for a prime loan but were sold a different product by their lender?