Home plan incoming

The Obama homeowner plan will be unveiled today. Per the leaks, it’s likely to contain substantial help for homeowners in trouble, which is great news for the economy (and the banks that got them there…) Says the WaPo:

President Obama will unveil today a $75 billion foreclosure prevention program, which the administration expects to reach up to 9 million homeowners.

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it,” Obama will say at a speech in Mesa, Ariz., according to an advance text released by the White House.

The Homeowner Affordability and Stability Plan includes measures to allow homeowners to refinance into loans with cheaper payments, according to a summary of the plan. For example, if a lender agrees to lower a borrower’s payment so that it comprises no more than 38 percent of his income, the government would pay to lower the payments further to 31 percent of income. The aim would be to make the payments affordable.

The plan offers incentives for lenders that modify troubled loans, with up to $1,000 for each modification and then another monthly “pay for success” fee as long as the borrower stays current, according to the summary. If the lender reaches an at-risk homeowner before they miss a payment and modifies their loan, the lender would be eligible for another incentive payment.

Homeowners will also be eligible for incentive payments. Those that stay current on their loans could qualify for a “monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan,” according to the summary. The homeowner could receive up to $1,000 a year for five years.

The Obama plan does not include provisions to help investors and is focused solely on owner-occupied homes. Officials said the administration is trying to provide enough help to stem foreclosures while not rewarding borrowers who purposefully stop paying. At the same time, Obama’s team wanted to risk only as much taxpayer money as absolutely necessary.

The plan “will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” Obama will say, according to the text of his speech.

The administration estimates that the plan could stop the slide in home prices by up to $6,000 per home, simply by reducing foreclosures. “The effects of this crisis have also reverberated across the financial markets. When the housing market collapsed, so did the availability of credit on which our economy depends,” Obama says in the prepared text. “As that credit has dried up, it has been harder for families to find affordable loans to purchase a car or pay tuition and harder for businesses to secure the capital they need to expand and create jobs.”

And from WhiteHouse.gov, some of the fine print in the form of a Frequently Asked Questions thread:

Borrowers Who Are Current on Their Mortgage Are Asking:

  • What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

  • I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

  • How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

Question: what is the point of helping homeowners who have an acceptable mortgage payment history? Doesn’t that mean they aren’t behind on their loans? Just asking. More fine print, and a seeming contradiction:

Borrowers Who Are at Risk of Foreclosure Are Asking:

  • What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

  • Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

Hm. I guess I’ll just wait for the announce.

UPDATE: President Obama is presenting the plan now. It sounds much better somehow in his speech than it did in the WaPo. The plan is clear and straightforward: refinancing Fannie and Freddie backed mortgages to market value, reducing mortgage payments for those in trouble to one-third of their income, allowing homeowners who are “upside down” on their mortgages to refinance at lower interest rates, and he plans to move forward on allowing bankruptcy judges to reduce mortgage payments so that they reflect the fair market value of homes. Perhaps anticipating GOP objections to that provision, Obama pointed out that “that’s already the rule for people who own 2, 3 and 4 houses, so it should also be the rule for people who own just one home.”

Great point.

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