TALF – Ray of Hope for Mortgage Loan Seekers

The Federal Reserve today announced a new set of terms for the TALF – Term Asset-Backed Securities Loan Facility, which is Federal Reserve’s earliest lending programs, to include mortgage loan / loans into it.

TALF helps investors to buy consumer debt-backed securities, by granting them low-cost and short-term loans. These low-cost short-term loans lasts for three years and their main focus in on car loans, credit card loans and other small securities. Now in order to increase the investors in Commercial Mortgage-Backed Securities (CMBS), the Federal Reserve is planning to extend the term of these short-term loans to five years.

These five-year maturities will be in effect from June 2009 and will be used to finance asset-backed securities, primarily in the commercial mortgage-backed securities sector. According to Federal Reserve these loans could account for upto $100 billion, so the Federal Reserve has planned to keep evaluating the limit.

The commercial mortgage-backed securities market continues to stuck  on the belief of revival through the TALF program. Currently worth about $700 billion, it has suffered a sizable drop as triple-A bonds fell from 12% to 10% in recent months.

Reducing profits on current debt is essential to the government’s goal to kick-off new lending. This is because banks would not benefit from making new loans as long as investors can buy more secure CMBS for the same profit as compared inferior bonds.

According to experts, reviving the credit flow is crucial to the real estate industry, especially with another wave of mortgage debt coming due in the next few months.

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“Loan Modification – Safe Harbour Plan”

Loan Modification

Few mortgage researchers are of the view that the newly bill  which was recently unveiled by the legislation is aimed at protecting loan servicers and these mortgage researchers believe that this will only lead to more lender abuse and unreasonable LOAN MODIFICATION.

The new bill is based on “SAFE HARBOUR” plan, allowing banking institutions to permit loan modifications without putting the investors at risk. Supporters of this bill believe that, will help to control the investor lawsuits currently plaguing major lenders like Citi and Bank of America.

According to a report there is nothing new in the bill,  and the report says that these loan modifications are in a way repayments which will increase the fees paid to the lenders rather than reducing the balance. The other finding of the report is that the lenders would modify those loans which were considered unqualified earlier to keep the servicing fees coming in.

According to New York-based law firm Grais & Ellsworth LLP the bill has nothing new in it. It is a variation of the Government’s Bailout package which was aimed was aimed at Four Big banks – Citi, Chase, Bank of America and Wells Fargo. Company also added that bill is not providing the real solutions for borrowers instead lenders are keeping up the principal amounts so that they can increase their revenues from servicing fees.

The company added, The Loan Modification – Safe Harbour Plan, will also affect 401(k) plans, savings accounts and pensions. And as the banks lose vital investors, even stable home buyers may have trouble obtaining financing in the future.

Almost 50% of the loans modified in late 2008 fell into default after only eight months, a trend that experts blame on abusive lender terms.