The Homeowner Stability Initiative:
The plan seeks to provide low-cost refinancing for as many as 5 million Americans who aren't behind on mortgage payments - YET.
If a bank agrees to issue lower-interest loans to homeowners who are current on payments, the loans could be sold to Fannie Mae and Freddie Mac, which were seized by the government in September 2008.
The idea behind the initiative is to allow access to refinancing for homeowners who don't have much equity in their homes, or owe up to 5% more than what their homes are worth. These borrowers currently cannot qualify for refinancing under Fannie's and Freddie's rules, and the change could result in savings on mortgage payments of up to $2,300 a year. For lenders, it also would generate a new stream of revenue from refinancing charges and help put a floor under declining home prices.
A second component of the plan makes another $200 billion available for mortgage finance. The U.S. Government plans to double an earlier $100 billion agreement with Fannie and Freddie to provide a government subsidy to purchase mortgages from banks and other lenders.
The third and trickiest component of the Government plan involves using $75 billion in Wall Street rescue funds for a shared effort to help as many as 4 million distressed borrowers who are behind on their payments or facing foreclosure. Obama wants lenders to lower interest rates and extend the length of loans to make monthly mortgage payments no more than 38% of borrowers' after-tax income.
The plan is that the government will step in and split the cost, dollar for dollar, to buy down those monthly payments until they account for no more than 31% of borrowers' after-tax income.
The U.S. Government is committed to publishing standardized guidelines for mortgage modifications and additional detail by March 4th, 2009.
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