There has been much talk these last couple of days about President Obama’s $75 Billion Homeowner Affordability and Stability Plan. The plan has several keys features to it that are designed to help current homeowners that are current on their mortgage payments to take advantage of today’s rates and possibly re-structure their loans without having to miss a payment to qualify.

Here are some of the key points:

• Allow homeowners that are currently 80% or greater in debt to the value of their home to refinance through Fannie Mae or Freddie Mac
• Lower monthly payments by reducing the interest rate to where the payments represent 38% of their total monthly income. In addition, the plan would match dollar-for-dollar any monthly savings from the interest payments bringing the effective ratio to closer to 31%.
• In addition to lowering rates, lenders may reduce the principal loan amount down.
• Lenders and servicers will paid incentives to do these modifications before a homeowner misses a payment.
• Establish consistent guidelines across the board for Fannie Mae and Freddie Mac on all modifications.
• Rebuild confidence in the two mortgage giants and increase their portfolio limits.

Now, there are some draw backs to this plan. Some are addressed and some are not. The first draw back being that the low interest that one gets today under the modification will only last for 5 Years. After the initial term is up, the interest rate will be slowly raised back up to the original rate. The problem with this is that home values could continue to decline or not increase enough to where the homeowner can refinance. The other issue is that the job market could still be a huge factor to where they cannot afford the increased payments again.

Another issue it that of Mortgage Insurance. This is the insurance that lenders require a borrower to pay for any loan that is greater than 80% the value of the home. With the current plan, some homeowners could have new modified loans that are at 105% . There is no mention in the plan that mortgage insurance be waived. Now, they did say that the monthly mortgage payment must be below 38%. Typically, this means PITI(MI) - Principal, Interest, Taxes, Insurance, Mortgage Insurance. So maybe they are factoring that in, but what happens in 5 years. Now they start raising the rate again back to its original rate, but this time your payment might have MI added into it. This could cause huge payment shock to homeowners, which is what really got us to where we are today.

And then there is the double whammy issue of taxes and insurance. Many areas that have the highest foreclosure rates also saw the highest increase in taxes and insurance. The spike in these payments (which are often part of the monthly mortgage payment - PITI) created payment shock for home buyers often after the first year when property taxes were re-assessed. This plan does nothing to address these issues. States can continue their practice of charging and collecting property taxes without regard to decreasing property values if they choose. And insurance companies can continue to increase their annual premiums. The plan proposal should really include these two key factors that helped lead homeowners into their current situation.

There are many more issues surrounding this plan, some good and some bad. In the end, we all hope that this plan will be the one to stop our current housing and mortgage industries decline. If it cannot stop it, then may it at least stall the decline enough to where confidence has a chance to catch up.

To read more about the plan, visit the homeowner affordability and stabilit plan fact sheet.