Obama Details Plan to Stabilize Housing
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The U.S. Treasury released the details of President Obama's 'Homeowner Affordability and Stability Plan' to address the nation's housing crisis. The plan is part of the President's, "broad, comprehensive strategy to get the economy back on track" and is designed to help 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.
The plan has three key components:
The second part of the plan will be the creation of a $75 billion homeowner stability initiates to reach up to 3 to 4 million at-risk homeowners. This part of the plan would provide help for those households at risk of imminent default despite being current on their mortgage payment. It will not not aid speculators or house flippers. The goal of the plan is to reduce the amount homeowners owe per month to sustainable levels. The government will share the effort with lenders to reduce monthly payments. The lender would first be responsible for bringing down interest rates so that the monthly payment is no more than 38% the borrowers income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs. In addition, services will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. There will also be an incentive to help borrowers stay current. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years. To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to services, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind. The government will also institute clear and consistent guidelines for loan modifications.
The third part of the plan will support low mortgage rates by strengthening Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each. The Treasury will also be increasing the size of the GSEs retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion.
For the full summary of the Homeowner Affordability and Stability Plan click here
The plan has three key components:
- 1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
- 2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
- 3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
The second part of the plan will be the creation of a $75 billion homeowner stability initiates to reach up to 3 to 4 million at-risk homeowners. This part of the plan would provide help for those households at risk of imminent default despite being current on their mortgage payment. It will not not aid speculators or house flippers. The goal of the plan is to reduce the amount homeowners owe per month to sustainable levels. The government will share the effort with lenders to reduce monthly payments. The lender would first be responsible for bringing down interest rates so that the monthly payment is no more than 38% the borrowers income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs. In addition, services will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. There will also be an incentive to help borrowers stay current. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years. To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to services, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind. The government will also institute clear and consistent guidelines for loan modifications.
The third part of the plan will support low mortgage rates by strengthening Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each. The Treasury will also be increasing the size of the GSEs retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion.
For the full summary of the Homeowner Affordability and Stability Plan click here
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