My Mortgage Rescue PlanWhen a homeowner applies for refinancing today, his lender (bank) has stricter qualifying standards than he had very recently. These higher standards effectively currently disqualify a huge number of borrowers who had refinanced or purchased at higher rates within the last several years. As a consequence of higher standards, these homeowners, are unable to obtain refinancing that would reduce their monthly payments.  Many of these ‘otherwise’ borrowers put their homes on the market. Market invetories rise and as inventories rise, values go down. As they go down, lenders become increasingly more reluctant to loan. The lender properly sees that home as a declining asset, as risky collateral. This vicious cycle seems to act like a tropical storm and nobody knows how much damage it might cause. So my solution steps in when the lender says ‘no’ to the ‘otherwise’ qualified applicant. That ‘refinance denial’ could be the tool to help repair the system. This tool provides an option for the lender and the borrower. That lender under concern who denies the applicant could futher determine whether the refinance applicant has inadequate supporting means or liquid assets, but otherwise has acceptable credit scores, and a regular income, to qualify for my solution, a direct from the government partial mortgage underwriting. 

Here's the basic proposal:The homeowner who applies for, but fails to qualify for refinancing, obtains the 'qualifying document' (loan rejection) from that ‘qualified lender’ who, being subject to regulatory standards, cannot offer refinancing. This document, which states the reason for denial, and confirms that the borrower has an otherwise qualifying credit score.  This document would be used to be forwarded to my solution agency to allow the homeowner to seek relief.  For the sake of further imagining my solution, let’s call that corporation the American Mortgage Assistance Corporation or AMAC.AMAC’s sole purpose would be to bridge one primary gap which enables our current lending crisis. (Banks won’t loan on declining assets.) The AMAC is not a private bank. It is an office of the U.S. Treasury. Its staff is not open to the public. It exists primarily as an accounting entity and source of funds to be obtained directly from existing TARP funds or similar assets. As funds are needed by the ‘qualified’ applicant homeowners, requests are submitted directly to the AMAC. Those funds, (if approved) are then passed forward to the lender who denied the applicant’s refinancing but who is utilizing this solution for his borrower.  That borrower who 'qualifies for AMAC assistance' would obtain a 2nd loan from the government, equal in amount to 50% of his current mortgage balance.  This 50% amount   can be spent ONLY to pay down the existing first mortgage by 50%.  (If a second or third lien exists, they would have to first be reworked and consolidated.) The first note-holder must then agree that the 1st  Note (mortgage contract) be re-written to reflect a newly  amortized monthly payment (based on the 1st) equal to  ½ its previous monthly payment.  (There should be no objection but a contract must be changed.) That rewritten loan would keep the same interest rate, the same amortization period, but for ½ the principal  amount but the monthly payment. (The first lien-holder’s risk is reduced enormously since he will be paid ½ of what he’s owed.)At the time of the 50% pay-off, the lender will also write a second lien against the borrower’s property, equal to the amount used to pay down the 1st plus documentation and recording fees (not to exceed $500) in favor of  AMAC,  payable to the U.S. Treasury.
However, (and this is the benefit), the interest rate on the second lien will equal 50% of the interest rate on the first lien.

For example if 50% of an existing 6.6% per annum original note is paid off, then the second, or AMAC loan, would be written and recorded at 3.3%.
A collection escrow would then be set up with AMAC to receive one lump payment to pay both loans, (just like a Wrap-Around Mortgage). AMAC would be in a position to directly ‘see’  the efficacy of the plan and pull the plug if things went sideways.

 The object of such a scheme will be to reduce the monthly payment approximately 25% of the original lien’s monthly mortgage amount. Then several very desirable things happen:1. The LENDER BANK who owns the note will be strengthened substantially as 1/2 of the remaining balance due is paid. 2. The HOMEOWNER’S financial position is strengthened as his payment is about 25% lower each month. He can see that his payment approaches what he may have to pay in rent and many will decide to take their homes off the market (an enormous help to reducing housing inventories). He will have funds to contribute to restoring the economy. (A homeowner paying down a $200,000 mortgage with 20 years renmaining at the rate of 6.6% will be paying about $1,503/month. With my scheme his payment is reduced to about $1,127/month. Homeowners who can actually qualify refinance 100% of their existing loan without the government’s assistance through a conventional lender would receive about the same benefit.)3. The TREASURY would receive 3.3% interest from the example homeowner above. That lien would be paid off in full at the time the home owner sold his home just like any other lien. However it might be set up to allow some 'nearly qualified' buyers to assume that existing 'wrap around' 2nd loan if  such an option made sense to the government.
The TREASURY (American taxpayers) also gets something back with minimal waste.4. The ECONOMY benefits in speed of recovery if those homeowners who would otherwise sell their homes, take those homes off the market.  Many would as their new payment would be near or less than local rent.The MAC rate would last as long as the 1st mortgage exists. The loans must be written to pay both down equally (unless some fool would rather pay off the AMAC loan first).  My own home has been on the market for 7 months. It’s a great home with refinished hardwood floors and 2 coats of quality paint inside and out. Even though my mortgage is only $815/month I can’t sell it. Meanwhile my income is declining. (I’m a Realtor!) My credit scores are good, but because of my reduced income I won’t qualify to refinance. I should ‘qualify’ for an AMAC loan. If so my payment would be reduced to about $610/month. At that rate I would take my home off the market since I know I wouldn’t find a decent rental for that monthly amount! Then I could wait things out and I’d take my home off the market. Reducing the real estate inventory (listed properties) would be a very big help and is leveraged with my solution.Stopping the foreclosure crisis is essential to save our economy!  My AMAC stimulus can be observed easily by AMAC by simply their looking at the data within their collection escrow system. AMAC would also be in an easy position to mail questionnaires to homeowners in their monthly statements.  The program could to expire to new borrowers in various parts of the country as the Treasury deems necessary.
If you think this makes sense, or have questions or suggestions email me at hthomasmanning@msn.comThomas Manning
Realtor - by Thomas Manning