RISMEDIA, February 19, 2009-(MCT/RISMedia)-President Barack Obama rolled out a bold $75 billion, three-part plan Wednesday to halt the soaring rate of mortgage foreclosures nationwide, one that seeks to encourage refinancing of homes now worth less than their mortgages and provides incentives for lenders to lower the debt load on struggling homeowners. The Homeowner Stability Initiative, which Obama unveiled in Phoenix, seeks to address one of the triggers of the global financial crisis: the 2.3 million U.S. foreclosures last year that are protracting the housing crisis and helping to drive down home prices across the nation.
The Homeowner Stability Initiative, which Obama unveiled in Phoenix, seeks to address one of the triggers of the global financial crisis: the 2.3 million U.S. foreclosures last year that are protracting the housing crisis and helping to drive down home prices across the nation.
Specifically, the Obama plan seeks to provide low-cost refinancing for as many as 5 million Americans. It seeks to help delinquent or at-risk borrowers get their mortgages modified so that no more than 31 percent of their income is tied up in their mortgages. And it provides financial incentives to lenders and even a new insurance program to promote more mortgage modifications.
Like the failed efforts under the Bush administration, however, the Obama plan doesn’t compel banks and other lenders to modify troubled mortgages. Instead, it provides a menu of incentives that may or may not prove sufficient.
“This is not just the treasury secretary going into the room and asking people to do the right thing,” said a senior Treasury official, speaking on the condition of anonymity to speak more freely. “This is the first time there has really been a systemic incentive strategy for them (lenders).”
Banks joined two prior voluntary efforts during the Bush administration _ Hope for Homeowners and the Federal Housing Administration’s FHA Secure _ but these efforts have resulted in relatively few mortgage modifications.
Now they’ll have a stick waved at them if they don’t comply with the subsidy plan. It will come in the form of Obama’s support for legislation pending in Congress that would allow bankruptcy court judges to modify the terms of a mortgage.
That’s forbidden right now, and banks and other lending institutions fiercely oppose what they call “cram down” legislation, warning that it’ll bring uncertainty for lenders, who will respond by restricting mortgage lending.
Banks may soon have to choose between the lesser of two evils. They could either modify loans - with a subsidy - to provide lower lending rates, and lose what they might have made from the higher lending rate over the life of the loan. Or they can do nothing and run the risk that a homeowner could file for bankruptcy and then have a judge order new loan terms that allow the borrower to stay in the home - and pay the lender less money.
The president’s plan also offers payments to mortgage servicers, who collect mortgage payments on behalf of investors who own the mortgages originally issued by banks but were sold into a secondary market. Servicers apparently would be offered a payment for modification on par with what they would collect in the case of foreclosure.
Help for Homeowners Q&A: Will the President’s Plan Help Your Clients?
The White House website posted a Q&A on its blog yesterday for homeowners in distress to learn how the President’s plan will help them specifically. Here are a few excerpts:
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.
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.
- 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.
- I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.
- Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a “Good Faith Estimate” that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.
- What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
- Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
- How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.
- When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.
- What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:
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- information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources
- your most recent income tax return
- information about any second mortgage on the house
- payments on each of your credit cards if you are carrying balances from month to month, and
- payments on other loans such as student loans and car loans.
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.
- I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.
Ever Changing Times We Live In . . .
Nice post