Acting on the one thing anyone agrees on about fixing our economy - "Fix housing first" - President Barack Obama just revealed his new $75 million housing relief plan.   The funds, coming from the taxpayer funded-financial rescue package, will be supplemented by a $200 billion government commitment to stabilize Fannie Mae and Freddie Mac by buying their stock and $50 billion more for the housing twins to buy up certain loans.  Not intended as either a quick fix or a universal one, the plan combines several different approaches to the multidimensional housing problem.

In formulating the plan, Obama faced the choice of who to help. Confronted with the prospect of three million new foreclosures in the first year of his presidency and a growing tide of underwater mortgage holders who owe more on their home than the traffic will bear, Obama tried to reach out to each group. 

An estimated 5 million homeowners will be helped by a provision of the plan that will remove restrictions that prevent Fannie Mae and Freddie Mac from refinancing homes where the mortgage exceeds the market value of the house.

Another 4 million homeowners will benefit from offers to lenders incentives to refinance subprime loans by offering cash incentives and by the government paying a portion of the difference between the old payment and the new.  The plan will standardize the target payment for refinancing deals at 31% of the mortgage holder's income.  Lender would absorb losses on loans over 38%, while the government would pick up the difference to lower the payment to 31%.

There are way more than 9 million troubled homeowners, but some won't be eligible for help under the new program.  The plan is based on the hard choice to help "preventable" foreclosures.  With joblessness soaring, many families without sufficient income to make a payment of 31% will not qualify.  Investors won't qualify either, even if they temporarily rented out the home. Some underwater mortgagees where the amount owed is way out of whack with the value may be out of luck too. The new plan allows a refinance up to 105% of the market value, but it still remains voluntary for lenders to write down the loan over the 105%. 

There are some "partial cramdowns" in the bill, particularly a provision to allow bankruptcy judges to modify mortgages.  The part of a mortgage above current market value might now be considered unsecured debt that can be modified.  Lenders have traditionally opposed this but a recent case involving Citibank opened the door to inclusion of this provision in the bill.

In addition to helping current homeowners, Obama hopes that bolstering Fannie Mae and Freddie Mac will help keep mortgage rates low enough to entice homebuying.  Coupled with the new $8,000 credit authorized by the larger stimulus bill passed last week, home seekers with good credit have two incentives to buy.  Some potential buyers may fear investing in a home where the market value could erode further.  The hope is that the total plan will stabilize the market enough to convince buyers they are making a good choice to buy now.

How will this play out in the Las Vegas market?  Early predictions are that tens of thousands of local buyers will be helped by the legislation. We'll keep you posted in the coming months on how local foreclosure rates as well as buying trends change.

Ready to buy a house now to take advantage of the new tax credit?  Or ready to in the near future?  At Prudential Americana, Yonas Woldu and Nebi Adhanom are as near as a phone call.  Call (702) 898-9838 to take advantage of great deals in the Greater Las Vegas area.