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Pres Obama’s Homeowner Plan and the Stimulus Package home-buyer credit

By
Mortgage and Lending with Hemet Mortgage

Pres Obama's Homeowner Plan and the Stimulus Package home-buyer credit

 

It was a big week for the government and the new President. Two huge plans were unveiled last week with the hopes of stabilizing our economy and housing market. First the Economic Stimulus Plan for 2009, was finally approved by Congress and signed by President Obama. Secondly, the President unveiled the initial details of his Homeowner Affordability and Stability Plan, which is designed to help stabilize the housing market and keep millions of borrowers in their homes. We did not get much detail about either plan yet but here is what is known.

It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

Even more, the tax credit is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you're liable for $3,000 in income tax, you can offset that $3,000 with the tax credit and receive a tax refund of $5,000!

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

For the Homeowner Affordability and Stability Plan we did not get much in the way of details. The press releases noted that more detail will be available March 4 so I will be keeping a close eye out for the release of more details. We do know the plan is to help homeowners that are behind on there mortgage stay out of foreclosure and another part of the plan is to help homeowners not yet in trouble with their mortgage but lost much if their equity. There are two main components to the plan and the plan will only cover mortgages on primary residences.

The first is a program to help homeowners refinance that have less than 20% equity in their home and owe up to five percent more than their home is worth. The plan will help those who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac.

According to the plan, "credit-worthy" or "responsible" (with no clarification of those terms) homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. As with the rest of the plan, details about this initiative will be released at a future date.

The second phase of the plan is aimed at providing help by helping reduce foreclosures and stabilizing home prices. It is intended to help homeowners who are struggling to make their mortgage payments, but cannot sell their homes because prices have fallen significantly.

This plans main objective is to: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs. What is great about this program is that homeowners do not have to be behind on their payments to qualify.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.