Treasury's New Homeowner Affordability and Stability Plan

Believe it or not, this is the FOURTH time, I've modified this blog about the President's new Homeowner Affordability and Stabilization Plan (HASP) unveiled today during his trip to Arizona.  I've tried to summarize the HASP here, but perhaps the best information comes directly from the Treasury itself.  The President's Press release on the HASP can be found at www.treas.gov/press/releases/tg33.htm and the website has a link to the complete detailed analysis of the provisions of the HASP.  For even more information about the new Plan, Active Rain blogger Jeff Corbett has written a fine summary of the more important points, but again, for a "complete picture" check out the Treasury Department's posting and PDF fact sheet.

Like Jeff Corbett, I'm very pleased to see this rather aggressive attempt to tackle the housing problem at the "consumer level" rather than just infusing money into financial institutions in the hopes that the additional cash will encourage more lending.  Although the HASP is not perfect and will not save everyone from losing their homes, the plan's provisions (some noted below) will certainly help a large majority of homeowners who might not otherwise be able to keep their properties.

The Plan Provides:

1. An additional $200 billion to be given to Freddie Mac and Fannie Mae to refinance loans, and to increase consumer confidence in these institutions
2. The ability for homeowners who have NOT defaulted to refinance home loans that are "under water" or who have less than the required 20 percent equity to refinance provided the property is owner occupied and the home loan meets Freddie Mac and Fannie Mae conforming loan limits (currently at $625,000).
3. The ability for homeowners to reduce monthly mortgage payments to 38% of the homeowner's debt-to-income ratio through a series of lower interest, longer loan terms or principle reduction; and then to have the government further subsidize a reduction to 31% of the homeowner's DTI.
4. $1000 incentives to be paid annually for up to five years to homeowners who pay their mortgages on time
5. $1000 incentives to mortgage companies to modify loans, with an additional incentive of $1000 more per year for three years
6. Reduction in PMI or Private Mortgage Insurance
7. A $10 Billion fund of Mortgage Insurance to be offered to lenders to provide for coverage should home prices fall after modification.
8. Some housing relief for renters who have been displaced due to the foreclosure of their rental home
9. A uniform guideline for loan modification to be announced on March 4.  Banks receiving TARP funds will be required to participate in the loan modification programs.

While most posts I've read on this subject tend to make one believe that only those with a Freddie Mac or Fannie Mae loan may seek relief, the FACT SHEET provided by the Treasury makes it clear that any loan owned, purchased or guaranteed by the government--including FHA, HUD and Housing Administration loans--may be eligible for modification under the terms of the HASP.

Keep in mind, however, that this new plan will NOT help:

1. Real estate speculators or flippers
2. Owners of Commercial Property
3. Owners of investment property, such as rental properties
4. Individuals who knowingly purchased homes they could not afford

It will be pretty easy to identify the first three types of property owners, but the fourth--those who knowingly purchased homes they could not afford--will be harder to weed out.  For the past five or six years, homeowners have, with knowledge and understanding, withdrawn the equity from their homes to buy luxury items and pay for excessive spending.  The result is that the loans these homeowners now have on their properties far exceeds what the owner could have ever afforded.  Because the HASP appears to be voluntary on the part of the lender, there may not be hope for a vast majority of owners whose current debt makes modification infeasible or less advantageous than foreclosure.

On March 4, the Treasury will announce their loan modification guidelines, which will greatly aid in determining who and how many homes might be averted from foreclosure in the near future.