New Housing Plan Released

On Tuesday, President Obama released his administration's new housing plan.  The plan is designed to slow foreclosures in an effort to stabilize the housing industry.  The following are the key points of this far reaching plan:

1. It aims to help 4 to 5 million responsible homeowners to refinance and to lower the risk of imminent default of another 3 million homeowners with $75 Billion Dollars.

   • Encourage mortgage holders to accept loan modifications to get the housing ratio for the borrower down to 38% through lowering the principal and or lowering their current rate.

   • The government will then may use tax payer's money to buy the loan down from a 38% debt ratio to a 31% debt ratio.

2. They will invest another $100 Billion Dollars each in additional preferred stock purchases of Fannie and Freddie to bring the total preferred stock owned at $200 Billion Dollars each.

3. They will increase the amount of portfolio loans (the cap) with Fannie and Freddie by another $50 billion.

4. Servicers will receive $1000 upfront for loan modification fees.

5. Borrower's to receive incentives for keeping their mortgage current.

6. $10 Billion Dollar fund to insure lenders against further declines in home values.

7. Only provides help for owner-occupied properties.

8. Will support lower rates for Fannie and Freddie (no specifics how).

9. Allows Fannie and Freddie to refinance loans that they already own or guarantee by removing the provision that limits them to lending only up to 80% (Fannie and Freddie has never been allowed to lend over 80% LTV...that is why PMI exists to get around that).  This will remove the impediment of tougher PMI restrictions.

10. If you are financial institution that has received TARP funds or any other tax payer funds (hint almost every major bank) then you must adhere to this plan. 

11.  No help for Jumbos - "help for middle class families"

12. Treasury and Federal Reserve will continue to purchase MBSs based on ALREADY approved numbers.  It is unclear if any significant purchases will be made over and above what has already been announced - this is important because this is one item that can actually cause rates to decrease. I will be watching this for you.