President Obama unveiled his $75 Billion plan to stem the foreclosure crisis in the country. The "Homeowner Affordability and Stability" plan proposes to help between 7-9 million families restructure & refinance their mortgages to avoid foreclosure.
Highlights of President Obama's plan to reduce mortgage foreclosures:
- Allow an estimated 4 million to 5 million currently ineligible homeowners who get their mortgages through Fannie Mae or Freddie Mac to refinance at lower rates.
- Create incentives for lenders to work with borrowers to modify the terms of subprime loans at risk of default and foreclosure.
- Take "major steps" to keep mortgage rates low for millions of middle-class families seeking new mortgages.
- Pursue reforms designed to help families avoid foreclosure, including allowing bankruptcy judges to reduce mortgages on primary residences to their fair market value.
Who benefits from the plan?
- Homeowners on the verge of becoming delinquent or those who have missed a few payments are the prime candidates for assistance.
- The plan calls for lenders to reduce monthly interest payments to 38 percent of the mortgage holder's income. Then, the government would step in with funding to help reduce payments to 31 percent of the individual's income.
- Another key part of the administration's plan enables lenders, with the assistance of the Treasury Department, to reduce monthly payments by lowering the principal due on the mortgage.
Links to articles and blog posts about the President's Housing Plan:
- Obama Housing Plan: Live Blogging Summary Trulia Blog
- President Barack Obama Foreclosure Speech - $75 Billion Housing Plan Full Text of Speech
- The Obama Housing Fix: 5 Things to Know US News & World Report
- Housing plan leaves out critical pieces Politico.com
- Q&A: Foreclosure Plan Won't Help Everyone NPR News
Removing a limit on refinancing for "responsible homeowners"
4 million to 5 million households.
The bill will remove the current restriction on Fannie Mae and Freddie Mac that prohibits them from guaranteeing refinancing on mortgages valued at more than 80% of the home's value. This will allow many more homeowners to refinance at lower rates.
Who may qualify
- Example
- Today A family's home value drops to $400,000 from $475,000. The loan balance at $337,460 is now more than 80 percent of the home's value, making it difficult to refinance under current rules.
- Under the proposal The family can refinance to a rate of 5.16% from 6.50%, which would save $331 a month and $3,968 a year.
Who doesn't qualify
- Those holding loans not owned or guaranteed by Fannie Mae or Freddie Mac.
- Mortgages above a certain threshold -- $417,000 for single-family homes in most areas and $729,000 in higher-priced regions.
- Those whose outstanding mortgage debt exceeds 105% of their current home value.
Helping renegotiate loan terms for "at-risk homeowners"
3 million to 4 million households.
The bill creates incentives for lenders to modify the terms of subprime and other loans. Participating lenders will reduce payments to no more than 38% of borrower's income, with the government matching further reductions down to 31%.
Who may qualify
- Example
- Today A family's home value has fallen to $189,000 from $230,000 and its loan balance is $214,016. Job loss has reduced household income and loan payments can't be made.
- Under the proposal The family could modify the mortgage for five years, so that payments are manageable. This would save $406 a month or $4,870 a year.
Who doesn't qualify
- Mortgages above a certain threshold -- $417,000 for single-family homes in most areas and $729,000 in higher-priced regions.
- Homes that are not owner-occupied.
- Those who apply more than three years after program's start.
From The White House blog:
Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan
Homeowner Affordability and Stability Plan Executive Summary (PDF)
