Well, guess what, it’s not a handout.

Everyone was up in arms this week over the Governor’s plan to help homeowners facing foreclosure.

Here is the proposal:

Governor Unveils $250M Foreclosure Fund

Earlier this month, Massachusetts Governor Deval Patrick unveiled a $250 million fund aimed at helping residents facing foreclosure by refinancing their loans into more affordable ones.

The Massachusetts Housing Finance Agency (MassHousing) will provide the financing along with Fannie Mae, a federal agency that invests in mortgages.

Subprime borrowers who are behind on their monthly payments by 60 days or less are eligible to refinance into 30-year mortgages with a fixed rate of 7.75 percent. Approximately 1,000 Bay State residents’ loans will be refinanced because of the program.

The program does have income limits. Qualified Boston residents can earn up to 135 percent of the median household income ($108,000). The limit in the rest of the state is 125 percent of the median income ($98,000). MassHousing will refinance single family homes up to $417,000 and three-family homes up to $645,600.

Borrowers who used subprime mortgages to refinance their home to cash out its equity are not eligible for the program.

The program has received criticism, however, because of state officials’ insistence on forcing lenders to accept the losses on loans when the property value has decreased since the loan was first made. For example, if a subprime borrower purchased a home with a $300,000 loan and now the home is worth $275,000, the lender would take a $25,000 loss. The state would refinance the $275,000.

Some say this is the best option for lenders, who understand that if a house goes into the foreclosure it’s worth much less.

To apply for financing, borrowers must call NeighborWorks America at 888-995-4673.

The media (read: talk radio) went crazy over the proposal, because they thought that Mr and Mrs Mass Taxpaper were going to be paying for other people’s mistakes. It sounded like it was a bailout.

Well, sort of. But not really.

I spoke with Tom Farmer at Mass Housing and he gave me more details.

Of the $250 million, $190 million is coming from Fannie Mae – the ex-governmental organization in charge of funding loans and making housing more affordable for millions of Americans.

The remainder, $60 million, is coming from the sale of tax-free bonds issued by Mass Housing. This is what Mass Housing does, as a regular part of its business.

Basically, they’re just replacing the high-risk loans with new loans.

Yes, it allows people to “cheat” the system (you could say) because it lets them off the hook from having to pay their adjustable rate mortgage loans or from having to enter into default or face foreclosure.

But it’s not really costing you or me any money. Really, it’s not.

I think we all got caught up a bit in the “it’s not fair, he’s getting something I’m not” game.

So, step back for a second and just relax.

During our conversation, I also learned a bit more about Mass Housing.

I had a theory. I was under the assumption that Mass Housing had been giving out loans over the past several years to borrowers with bad or no credit, and that Mass Housing was putting these borrowers into high-risk, adjustable-rate loans. And, since so many people are facing default or foreclosure these days, I assumed that Mass Housing had huge exposure to losses.

Well, according to Tom, that’s not true.

He says that the number of Mass Housing loans at risk of foreclosure is less than the industry average.

And, what I didn’t know was that most (if not all) loans they write are fixed-rate loans, so very few (if any) borrowers are at risk of higher interest rates, therefore, at low risk for foreclosure.

I’m surprised.

Mass Housing, being a pseudo-public agency not driven by profits, has the ability to find funding for many homebuyers at lower than average interest rates. They line up funding sources for borrowers. Many homebuyers can get loans up to 100% (or more?) of the price of their homes.

So, contrary to what I thought, Mass Housing isn’t “lender of last resort” but simply an alternate way of getting a loan.

(Mass Housing funds its loans through third-parties, at least that’s what Tom told me. I’m not clear on when they use lenders and when they fund the loans themselves, but I’m sure someone can fill us in on the details.)

Finding ways to allow homeowners to keep their homes is a worthwhile endeavor. I am very, very critical of certain proposals that have been floated by our Governor over the past several weeks (like, making banks pay your rent), but, having said that, I am now in total support of this specific plan to “bail-out” owners facing financial difficulty.

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Updated: 1st Q 2018

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