President Obama's Foreclosure Plan
Alabama Consumer Lawyers will soon have another avenue to help embattled homeowners fight and avoid foreclosure. On Wednesday, February 18, 2009, the White House announced President Obama’s “Homeowner Affordability and Stability Plan” earlier this week. The plan presents a comprehensive program designed to help families stay in their homes. The Administration estimates that the plan will assist as many as 9 million homeowners whose homes are now worth less than the amount of their mortgages.
The plan will assist two main groups of homeowners: (1) those whose homes are financed with Fannie Mae or Freddie Mac and who owe up to 105% of the fair market value of their home, and (2) homeowners with other lenders who are at risk. Complete eligibility guidelines will not be issued until March 4, 2009.
The program will help both homeowners who are current on their payments but find that their homes are worth less than their mortgage balance and homeowners in default and behind on their payments.
Many homeowners who are not behind in their payments find that the current mortgage crisis and high foreclosure rate has lowered their home's fair market value and they are "upside-down" in their mortgage. The president's program will assist these people.
The plan changes Fannie Mae and Freddie Mac eligibility guidelines so that as many as 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac may refinance their mortgages at lower rates. Under current rules, refinancing is not an option for most homeowners who owe more than 80 percent of the value of their homes.
Removing this restriction “will allow millions of families struck with loans at a higher rate to refinance,” Obama said. “And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.”
An additional 3 million to 4 million homeowners will be able to avoid foreclosure through a new $75 billion mortgage modification program. The Homeowner Stability Initiative will be available to homeowners who are at imminent risk of default, even if they are now current on their payments.
Lenders will be responsible for reducing interest rates on these loans so the monthly payment would be no more than 38 percent of the homeowner’s income. Government funds would match further reductions in interest rates to bring the payment down to 31 percent of income.
“If lenders and homebuyers work together, and the lender agrees to offer rates that the borrower can afford, we’ll make up part of the gap between what the old payments were and what the new payments will be,” Obama said in a speech to be delivered Wednesday in Phoenix.
Mortgage servicers would receive an upfront fee of $1,000 for each loan modification that meets the program’s guidelines and would continue to receive up to $1,000 a year in fees for three years as long as the borrower remains current on the loan.
As an additional incentive to boost the program, mortgage servicers also will receive a $500 bonus if they modify at-risk loans before they fall behind. Mortgage holders will receive a $1,500 bonus to do this.
The administration’s goal is to stabilize the housing market saying “the Homeowner Affordability and Stability Plan will support a recovery in the housing market and ensure that these workers can continue paying off their mortgages.” This is good for everyone. Even homeowners who are not in distress will benefit from fewer foreclosures in their neighborhoods.
Additionally, this is only one part of the Administration plan. The foreclosure relief bill or bankruptcy "cramdown" bill I discussed in my January 27, 2009 posting is working its way through Congress.
