San Diego Real Estate

Obama’s Homeowner Affordability and Stability Plan released

The Obama Administration has released the Homeowner Affordability and Stability Plan, which the Administration hopes will help as many as 9 million homeowners in danger of foreclosure. There are three main components to the plan. The first is aimed at assisting homeowners that still have equity in their homes but currently cannot refinance, the second is to assist homeowners who are underwater on their mortgages and the third is aimed at supporting low mortgage rates through Fannie and Freddie. The plan only applies to primary residences and the loans cannot exceed Fannie/Freddie conforming loan limits.

The first component will help homeowners who have equity in their homes but fall short of the 20% equity needed to refinance. Homeowners who have conforming loans owned or guaranteed by Fannie or Freddie will be able to refinance so that they can lock in an affordable payment. The government estimates that approximately 5 million homeowners will be helped by this component of the plan.

The second component is aimed at homeowners who are underwater on their mortgages. The $75 billion initiative works to bring lenders, loan servicers and government stakeholders together to share in the cost of loan modification. The plan is to bing primary mortgages down to payments that do not exceed a 38% debt-to-income ratio. The cost of the loan modification would be bore by the lender while the government and the lender would split the costs of further reducing the monthly payment. Homeowners would not have to be delinquent on their mortgage to participate in this component of the plan. Furthermore, the component aims to create clear and consistent guidelines for loan modifications. Federal agencies, banking and credit union regulators as well as the private sector would come together to develop guidelines for use across the mortgage market. Adoption of the guidelines would be voluntary for the private sector, but all financial institutions receiving Financial Stability Plan assistance going forward will be required to implement the loan mod guidelines. And we know how the government feels about banks taking relief money….The plan also offers incentives for servicers and mortgage holders that participate in the loan modification program. Details are set to be released on March 4th. The government estimates that 3 to 4 million homeowners will be helped by this component of the plan.

The third component is aimed at supporting low mortgage rates by strengthening Fannie Mae and Freddie Mac. The Treasury Department would increase their Preferred Stock Purchase Agreements with both Fannie and Freddie from the current $100 billion to $200 billion in each. The Treasury Department will continue to purchase Fannie and Freddie back securities in order to promote a stable and liquid marketplace. Additionally, the Treasury Dept. will increase Fannie Mae and Freddie Mac’s portfolios by $50 billion, for a total of $900 billion. The Administration will work with state housing finance agencies, through Fannie and Freddie, in an effort to support agencies in serving home buyers with programs like CalFHA.

Though some details are still being worked out, the plan should need little legislative support as the Obama Administration plans on using programs and funding allocated for the Homeowner Affordability and Stability Plan.

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