How Obama’s Program Can Save Your Home
President Obama wants to save your home and has developed a $75 Billion Homeowner Affordability and Stability Plan to do just that. Millions of responsible families who make their monthly payments have seen their property values fall and are now unable to refinance at lower mortgage rates. Millions of workers have lost their jobs and are now struggling to stay current on their mortgage payments. Neighborhoods are struggling, as each foreclosed home reduces nearby property values. The Homeowner Affordability and Stability Plan will help up to 9 million families restructure or refinance their mortgages to avoid foreclosure. For many families, refinancing could reduce mortgage payments by thousands of dollars per year.
The Plan has several different parts:
1. Easier & Free To Refinance Your Home
Low-Cost Refinancing for Responsible Homeowners suffering from falling prices: This will help up to 4 million homeowners refinance, taking advantage of historically low current mortgage rates. Under current rules, most families who owe more than 80% of the value of the homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have seen the value of their homes drop low enough to make them unable to access these lower rates. Homeowners who took out loans owned or guaranteed by Fannie Mae or Freddie Mac can refinance through those two institutions.
2. Reduce Your Current Mortgage To 31% of Your Income
$75 Million for Homeowner Stability: Up to 4 million homeowners are at-risk for losing their homes. Millions of responsible homeowners are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen. Millions have seen their mortgage payments rise to 40 or even 50 percent of their monthly income. The Homeowner Stability Initiatives helps those who commit to make reasonable monthly mortgage payments to stay in their homes. This is aimed solely at homeowners to stay in their homes- not to aid speculators or house flippers. This will help protect neighborhoods by stabilizing home prices as these homes would not go into foreclosure. This will also support homeowners who are current on their mortgage payments, but at risk for default.
a. The goal of the Initiative is to reduce the monthly mortgage payment to a sustainable level. The hope is to get the payments closer to 31% of the monthly income. The lower interest rate must be kept in place for five years. After that point, the interest rate can be gradually 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.
b. Loan Servicers will receive an up-front fee of $1,000 for each eligible modification and up to $1,000 each year if the borrower stays current on the loan.
c. Homeowners can receive up to $1,000 each year for five years that would go directly to reducing the principal balance of the mortgage loan if they stay current on their loan.
d. To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, and incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
e. If borrowers have high total debt levels they can still qualify for this program, but only if they agree to enter HUD-certified consumer debt counseling. Specifically, homeowners with total “back end” debt (which includes not only housing debt, but other debt including car loans and credit card debt) equal to 55% or more of their income will be required to agree to enter a counseling program as a condition for a modification.
f. An insurance fund will be created by the Treasury Department to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
3. Banks Required To New Loan Modification Guidelines
Institute Clear and Consistent Guidelines for loan modifications. The U.S. Department of Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with bank agencies. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance.
What You Can Do Now
The Plan goes into effect on March 4, 2009 so details of the program will be announced then, although there will be NO FEE to refinance your loan. In the meantime you should gather your paperwork together including:
1) Pay stubs and gross monthly income information
2) Your most recent income tax return
3) Information about any second mortgage on the house
4) Payments on each of your credit cards if you carry balances from month to
5) Payments on other loans such as student loans and car loans.
For more information check out a great new website: http://www.financialstability.gov/
Matthew Lesko, best selling author and expert on government information has more information on Obama’s Stimulus Package on his website: