Obamaâ€™s Housing Stability Plan: How It Affects You
President Obama announced today a $75 billion foreclosure prevention plan that offers subsidy incentives to lenders who modify mortgage loans for troubled homeowners facing foreclosure and offers payment incentives to homeowners who make an effort to stay current on their modified mortgages, CNNMoney reports (â€śObama: Aid to 9 Million Homeowners,â€ť Feb. 18, 2009).
The Homeowner Affordability and Stability Plan is intended to help 9 million struggling homeowners remain in their homes by offering loan modifications or refinancing options. And the plan is expected to be coupled with a housing bill that would allow bankruptcy judges to modify mortgages in a controversial procedure known as a cramdown, a measure that still needs Congressional approval.
Obama unveiled the plan during a visit to Arizona, which had the third-highest number of home foreclosures last year.
The plan, which would provide necessary aid to struggling homeowners â€świthout rewarding risky behavior or spending hundreds of billions of dollars,â€ť is one of the governmentâ€™s most ambitious efforts aimed at correcting the tanking housing market, writes Deborah Solomon of The Wall Street Journal (â€śDistressed Homeowners Get New Options in Plan,â€ť Feb. 17, 2009).
The U.S. Treasury will be responsible for developing and implementing a uniform set of mortgage loan modification guidelines that will be implemented across the mortgage industry.
â€śIn the end, all of us are paying a price for this home mortgage crisis,â€ť Obama told the Arizona crowd. â€śAnd all of us will pay an even steeper price if we allow this crisis to deepen â€” a crisis which is unraveling homeownership, the middle class, and the American Dream itself.â€ť
Who It Helps
Lenders willing to modify or refinance home loans. The government will give lenders $1,000 for every home loan modification that they complete and could give lenders up to $1,000 in government funds each year (for a maximum of three years) that a homeowner with a modified loan doesnâ€™t re-default. Lenders could also receive $1,500 if they modify the home loans of mortgage holders who are at-risk of falling behind on payments.
Homeowners who stay current on their modified loans. Homeowners who make on-time mortgage payments could receive up to $1,000 each year for five years, which would go straight toward reducing their principal balance.
Homeowners facing foreclosure. Three to 4 million homeowners who are delinquent on their mortgage loans or who have already received foreclosure notices may be eligible to have their loans modified.
Homeowners underwater on their mortgage. Four to 5 million homeowners who have Fannie Mae or Freddie Mac held or guaranteed home loans and who are current on their mortgage payments but owe more than 80 percent of their homeâ€™s value may be eligible to refinance.
Ways You Could Be Helped
Loan Modification: Provides government subsidies to lenders who bring down a homeownerâ€™s monthly mortgage payment, either by reducing the interest rate or adjusting other terms, to 38 percent of the homeownerâ€™s income. The government, matching dollar-for-dollar, will pay lenders to further lower a homeownerâ€™s monthly mortgage payment to no more than 31 percent of the homeownerâ€™s income. Lenders will also be able to adjust a homeownerâ€™s principal balance with help from the Treasury.
Loan Refinance: Allows families who owe more than 80 percent of the value of their homes be able to refinance into a 15- or 30-year mortgage at a fixed rate near the market rate of 5 percent. Typically, lenders require homeowners to have 20 percent home equity to qualify for todayâ€™s low interest rates.
Bankruptcy Court Cramdowns: Allows bankruptcy judges to modify home loans during court proceedings by reducing the principal balance of the loan to the homeâ€™s current market value, a measure that experts say is the key to keeping homeowners from re-defaulting on their mortgages.
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