Obama Unveils Homeowner Affordability and Stability Plan
Revised February 20, 2009
President Obama unveiled his plan to help stabilize the housing market and keep
millions of borrowers in their homes.
The Homeowner Affordability and Stability Plan includes two initiatives to help
struggling homeowners. One is a refinancing program for homeowners with less
than 20% equity in their homes, or who owe more than their home is worth. The
second program attempts to lower monthly payments for homeowners at risk of
losing their home. In addition, the plan includes a third initiative to support low
mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
Many of the plan's details are still being worked out and will not be announced
until March 4, here is an overview of the plan's main components.
Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes
have a difficult time refinancing and taking advantage of the historically low
interest rates. Therefore, the refinancing initiative in the new plan provides
refinancing help for homeowners with less than 20% equity in their homes or who
owe more than their home is worth. This initiative is open to homeowners who
have conforming loans which are guaranteed by Fannie Mae and Freddie Mac,
and who owe up to 5% more than their home is worth.
According to the plan, "credit-worthy" or "responsible" 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. For many families, this low-cost refinancing may help reduce
their mortgage payments by up to thousands of dollars per year.
As with the rest of the plan, details about this initiative will be released at a future
date-including what, if any, credit score requirements will be included.
Stability Initiative
This initiative aims at providing help to individual families as well as entire
neighborhoods by helping reduce foreclosures and stabilize home prices. It is
intended to help homeowners who are struggling to afford their mortgage
payments, but cannot sell their homes because prices have fallen significantly.
The goal of this initiative is simple: "reduce the amount homeowners owe per
month to sustainable levels." To accomplish this, lenders are encouraged to
lower homeowners' payments to 31 percent 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.
Homeowners who are current on their mortgages but are struggling can still
apply for this program. As such, this is one of the few programs designed to help
homeowners who may face delinquency soon, but are current at the moment.
Since the focus of this initiative is on helping families and neighborhoods,
investment properties do not qualify. This initiative also includes a number of
additional elements and incentives that benefit homeowners and lenders alike,
including:
· Incentives to Help Borrowers Stay Current: To provide 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.
· Reaching Borrowers Early: To keep lenders focused on reaching
borrowers who are trying their best to stay current on their mortgages, an
incentive payment of $500 will be paid to servicers, and an incentive
payment of $1,500 will be paid to mortgage holders, if they modify at-risk
loans before the borrower falls behind.
Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury
Department is increasing its funding commitment to Fannie Mae and Freddie
Mac to ensure the strength and security of the mortgage market and to help
maintain mortgage affordability. This portion of the plan will use using funds
already authorized in 2008 by Congress for this purpose.
The increased funding will enable Fannie Mae and Freddie Mac to carry out
ambitious efforts to ensure mortgage affordability for responsible homeowners,
and provide forward-looking confidence in the mortgage market.
Again, the government plans to unveil the final details of the plan on March 4,
2009. For now, you can download a sheet of common Questions and Answers
produced by the government at: www.treas.gov/initiatives/eesa/homeowneraffordability-
plan/ConsumerQA.pdf
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