President Obama has just unveiled his much-anticipated plan on Wednesday to fight the US real estate crisis. As much as $275 billion will be pledged to help stem a wave of foreclosures sweeping the country.

The Mortgage Bankers Association previously reported at the end of 2008, just over 9 percent of all homes loans in the United States were in arrears or already in foreclosure. However Credit Suisse estimated 16 percent of all households with mortgages could fall into foreclosure by 2012.

 The $275 billion US real estate aid plan includes $50 billion from funds already committed in the financial sector bailout. Part of the funds will be set for refinancing traditional mortgages for up to 5 million homeowners who now are close to owing more than their homes are worth.  Within the fund, $75 billion will be set to reduce monthly payments for 3 to 4 million homeowners who are “stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune”, Obama said.

On the other hand, the plan aims to increase confidence in mortgage giants Fannie Mae and Freddie Mac through Treasury funding to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.  The Treasury will increase its preferred stock purchase agreements with the two companies to 200 billion each from 100 billion. It also outlines the plan to raise the limit on the size of the mortgage portfolios the two companies can hold by $850 billion to $900 billion each, along with a corresponding increase in their allowable debt outstanding.

Obama’s noted, “By making these investments in foreclosure-prevention today, we will save ourselves the cost of foreclosure tomorrow – costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole.”

John A. Courson, President and CEO of the Mortgage Bankers Association (MBA) issued a statement on February 10, 2009 in response to Treasury Secretary Timothy Geithner’s announcement on the administration’s plan to help recapitalize the banking system and aid struggling US Real Estate.

Mr. Courson highlighted two major components of Geithner’s plan. First, efforts will be made to help homeowners who are having difficulty making their mortgage payments.  Stemming the tide of foreclosures is a crucial part of stabilizing both the housing market and the overall economy. Mortgage Banker Association supports Treasury’s goal of bring all stakeholders together around a uniform and workable standard for modifying loans to help troubled homeowners of US real estate achieve an affordable monthly mortgage payment.

The second component consists of a multi-pronged approach to restart the stalled credit markets and encourage financial institutions to start lending again. Mr. Courson is pleased the expansion of the TALF to specifically include commercial mortgage-backed securities. The US Mortgage Banker Association hopes the program will contain support for both new and existing assets including private label residential mortgage-backed securities.

The US Mortgage Banker Association will continue to work with the administration, banking regulators and Congress to ensure the plan is quickly implemented and has its maximum intended effect.

The latest real estate data shown that mortgage applications rose in the last week of January, reflecting a jump in demand for home refinancing even as interest rates rose to their highest levels since early December. The Mortgage Bankers Association indicated its seasonally adjusted index of mortgage application increased 8.6 percent for the last week of January from the previous week.

The National Association of Realtor also reported its Pending Home Sales Index, based on contracts signed in December, surged 6.4%. The first increase since August, 2008.

You’ve decided to purchase property in the U.S. What next? Unless you’ve saved up enough to pay cash, your first step is to arrange financing. 

And despite all the news about the U.S. mortgage meltdown, it’s still possible to arrange a secure mortgage on a U.S. property. 

Although most Canadian banking institutions don’t lend money to private investors wanting to buy U.S. real estate, they likely have a U.S. banking affiliate that does. BMO Bank of Montreal, for example, directs clients to its U.S. subsidiary, the Harris Bank, which based in Chicago. 

The process for Canadians to obtain a mortgage on a U.S. property is quite simple, says William Mies, district sales manager of mortgage sales for Harris Bank. Your application can actually be done over the phone through the bank’s team of mortgage specialists who will request the following:

•your credit report
•your income and assets 
•your employment history 
•two years of T1/T4 tax forms 
•two months of bank statements 
•a current mortgage statement (if you have a mortgage) 
•a signed purchase contract (if you’ve made the purchase)

According to Mies, you should expect to pay a minimum down payment of 20 per cent of the purchase price for a home that’s to be occupied as a second home, and 30 per cent for a home that’s to be used as rental property. He also says that you will likely be charged a .25 percent premium over the prevailing U.S. rate for the same mortgage product.

For example, if a mortgage is offered to U.S. citizens at 5.875 percent, Canadian citizens can obtain the same product at an interest rate of 6.125 per cent. Harris Bank provides only adjustable-rate mortgages to Canadians, but these mortgages do provide an initial fixed-rate period of either one, three, five or seven years.

Mies advises potential borrowers to carefully assess their short and long-term financial goals, as well as their payment and equity objectives before choosing a particular loan. “While longer terms traditionally carry a slightly higher interest rate, the difference at the moment is negligible,” he notes. “And longer fixed-rate terms are always the safer way to proceed for security.”

-The Toronto Star (September 27, 2008)

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