President Obama giving State of the Union Speech, January 2012.
Image source: eurweb.com

In his State of the Union address last week, President Obama outlined plans to allow privately-originated mortgages to be refinanced through the Federal Housing Administration. Aimed at helping underwater homeowners who are current with their mortgage payments, the plan seeks to allow those owners with negative equity to refinance and take advantage of today’s low interest rates, easing their monthly mortgage liability and increasing the likelihood that they will be able to keep their homes

To clarify the proposed plan, we’ve assembled the following FAQs to answer questions about this newest government initiative.

FAQ: The Obama Administration Refinancing Plan

What is the ultimate purpose of the plan?
The stated purpose of the plan is to ease the financial burden on underwater homeowners, preventing foreclosures and stabilizing the nation’s fragile housing market. The government estimates that owners refinancing under the plan will save nearly $3,000 per year on their mortgage expenses.

What are the eligibility requirements for the plan?
Owners must:

• Have at least six months of steady mortgage repayment
• Have missed no more than one mortgage payment within the last year
• Have a credit score of at least 580

The owner’s current mortgage must:

• Not already be backed by Fannie Mae or Freddie Mac
• Not exceed current FHA conforming limits for the home’s geographic area
• Be for a single-family, owner-occupied dwelling
• Not have over a 140% loan-to-value ratio

How much will this cost? And who will pay for it?
While debate will certainly take place over the federal cost of the plan, the Obama Administration has estimated the cost of the program to be between 5 and 10 billion dollars. They have proposed to pay for the bulk of the plan through fees assessed to the country’s largest banks.

Are there any other components to the plan?
Also of note is the plan’s proposed “Homeowner Bill of Rights,” which drafts a potential national standard for mortgage servicing, outlining expectations, rights and procedures for lenders, borrowers and financiers.

When will the new program take effect?
The program still needs to become law, and most experts expect the Republican-controlled House of Representatives to throw up a staunch resistance to the program. There is pointed concern that the program costs too much and unnecessarily expands the federal government’s exposure to liability in the real estate market. Any bill dealing with the program will likely not see action until after the elections held later this year.

See also:
Refinancing Rules Revamped to Help Millions of Homeowners
Now May Not Be the Best Time to Refinance
Obama Administration Launches “Short Refinance” Program

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