Today's Mortgage Rates

It has been my experience in life that before something goes mainstream and everyone knows about it, people usually work on it behind the scenes for a long time.

I suspect the HEFI program (explained to me by Equidebt Solutions recently) is no different — it is complex enough that I bet someone has been working on this solution for a long time — and I just heard about it.

What’s A HEFI?

HEFI stands for Home Equity Fractional Interest and it may end up being just the solution to lead us all out of the housing crisis. Or, at least – it is possible that it could help make a major dent in the problem.

The HEFI program is designed to help three different groups of homeowners:

1. Homeowners who owe more on their mortgage than their home is now worth. For people who owe on their mortgage than their property is now worth, a HEFI Agreement could be utilized to reduce the principal balance of the loan in exchange for a passive equity interest in the property to the Lender / Servicer who agrees to reduce the size of the loan to make it affordable for the homeowner.

2. Homeowners who currently have equity in their home and want to convert some of the equity into cash. For homeowners with equity in their home and who want to convert some of that equity into cash, a HEFI Agreement could be used rather than a second mortgage or a HELOC. A HEFI is not a debt instrument – it is an equity instrument.

3. People who are not yet homeowners, but want to be homeowners. For people who are not yet homeowners, a HEFI Agreement could be provided by a builder, developer or municipality where the HEFI Agreement would facilitate down payment support by a third party to reduce the overall cost of a new home purchase.

Just my opinion, but if the HEFI program can really help all three groups of people, it seems like a much better solution than some of those I have seen coming out of Washington lately.

I wonder if anyone has told them about it yet.

More Information:

The Obama administration said it is increasing the number of states that will receive funds aimed at stemming the tide of foreclosures. The news came on the heels of changes made last week to the government’s mortgage loan modification program.

The second HFA Hardest Hit Fund is targeting five states that have a high percentage of homeowners in economically distressed areas where unemployment was higher than 12% in 2009. The states that will receive $600 million of funding to help families stay in their homes are North Carolina, Ohio, Oregon, Rhode Island, and South Carolina.

The first HFA Hardest Hit Fund allowed up to $1.5 billion to be used in five states that had home price declines of more than 20%.

The aid allows the states to tailor foreclosure relief programs to local conditions. Depending upon the needs, funding could be used for unemployment programs, modifying mortgage loans, forbearance options, short sales, deed-in-lieu of foreclosures, reducing second liens, or writing down mortgage principal. Other programs could also qualify for funds.

According to White House economic advisor, it is expected that somewhere between 10 million and 12 million foreclosures are going to happen over the next three years.

And the White House along with other government institutions have released a plan designed to help at least some of the millions of people who may fall into the foreclosure statistics.

Today, it was announced that the Obama administration is launching a plan to reduce the principal amount that some people owe on their homes as well as give people who have lost their jobs and own a home a temporary financial break.

According to the Associated Press:

The new effort is designed to help two groups:

Borrowers who owe more on their loans than their houses are worth. Nearly 15 million homeowners fall into this category, according to Moody’s Analytics. About 10 million of them owe at least 20 percent more than their house’s current value.

These people would be helped in either of two ways: Their mortgage companies can cut the total amount they owe on their mortgage. Or they can refinance into loans backed by the Federal Housing Administration, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund.

Unemployed borrowers. People receiving unemployment benefitswould see their mortgage payments drop to no more than 31 percent of their monthly income — but only for three to six months. That’s intended to give homeowners more time to find a job. Once they do, they may qualify for a loan modification that would permanently reduce their payments.

What is somewhat unusual for this plan is that it is the first time I have seen the administration actually come out and say that they don’t expect it to solve the foreclosure crisis – that it was only going to (hopefully) make a small dent in the problem.

And as of today, somewhere around 6 million homeowners are behind at least 2 months on their mortgage payment, which is not a good sign.

Will it help?

Time will tell.

But I don’t expect much.