Obama Housing Plan Could Help 7-9 Million Homeowners

President Barack Obama unveiled the $75 billion “Homeowner Affordability and Stability Plan” today, which promises to help “… up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs.”

Coupled with the $787 billion economic stimulus bill Obama signed into law yesterday (the”American Recovery and Reinvestment Act), these massive billion dollar plans hope to make a dent into the dire straits the U.S. economy and housing market are in.

Here are 3 key elements to the homeowner affordability plan (from HUD):

1. Refinancing for Responsible Homeowners Suffering From Falling Home Prices

• Provide the opportunity for up to 4 to 5 million responsible homeowners expected to refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time securing refinancing. (For example, if a borrower’s home was worth $200,000, he or she would have limited refinancing options if he or she owed more than $160,000.) Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will provide the opportunity for 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Freddie Mac and Fannie Mae to refinance through the two institutions over time.
• Reducing monthly payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year. For example, consider a family that took a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
• No aid for speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
• Complete eligibility details will be announced on March 4th when the program starts.

2. A Comprehensive $75 Billion Homeowner Stability Initiative

The Treasury Department, working with the GSEs, FHA, the FDIC and other federal agencies, will undertake a comprehensive multi-part strategy to prevent millions of foreclosures and help families stay in their homes. This strategy includes these features:

• Homeowner Stability Initiative to reach up to 3 to 4 million at-risk homeowners
• Clear and consistent guidelines for loan modifications
• Requiring that financial stability plan recipients use guidance for loan modifications
• Allowing judicial modifications of home mortgages during bankruptcy when a borrower has no other options
• Require strong oversight, reporting and quarterly meetings with treasury, the FDIC, the federal reserve and HUD to monitor performance
• Strengthening FHA programs and providing support for local communities

3. Support Low Mortgage Rates by Strengthening Confidence in Fannie Mae and Freddie Mac
Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.

• Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
• Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.

Is your head spinning yet? This is a lot to take in, but it looks like refinancing, which has been all the rage lately, will really kick into high gear when the program goes into effect March 4. And, Wall Street seemed to like the mortgage relief plan as stocks went higher today. Obama’s plan is, in effect, saving people who are potentially facing foreclosure (hey, maybe the Prez read your Dear President Obama letter, Justin!)

Here are some helpful FAQs to try to make sense of the plan:

• Q&A for homeowners (White House)
• Three examples of how the homeowner stability plan can work (Dept. of Treasury)

Turn to Zillow Advice to see what others are saying:

• Are mortgage rates going to plummet now?

• Obama’s Housing Plan, 2009 Edition

• Can you use both the $7500 first time homebuyers credit & the $8000 credit from the new stimulus pkg?

February 18, 2009