President Obama pledged $275 billion to a program that includes cutting mortgage payments for as many as 9 million struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised. Bringing down foreclosure rate will help stabilize housing prices. Treasury will develop loan-modification guidelines for the mortgage industry that will be used for the administration's foreclosure-prevention plan. Banks including Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. have agreed to suspend foreclosure proceedings until the Obama plan is adopted.

Bankruptcy Reform

Obama will support revamping US bankruptcy rules to let judges reduce mortgages on primary residences to fair-market value as long as borrowers pay their debts under a court ordered plan. The plan will use $75 billion to match reductions lenders make in interest payments that lower borrowers' payments to 31% of their monthly income. Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower's mortgage balance.

Incentive

The government said banks accepting U.S. help must adopt loan modification plans. According to White House fact sheet, companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 for three years when the borrower stays current. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans. The cash will be applied to reducing the principal balance of the loan.

If you need real estate advice, feel free to contact me or visit www.westsidehomefinder.com. If you are interested in seeing if now could be a good time to refinanance your home, or get pre-qualified for a loan to purchase a property, don't hesitate to contact me or visit www.realpromortgage.com.

Source: Bloomberg