President Obama's Foreclosure Prevention Plan Speech in Phoenix, Arizona - Photo Credit: FoxNews.com
The Homeowner Affordability and Stability Plan aims to help as many as 9 million homeowners restructure their mortgage obligations and avoid foreclosure. It is an ambitious and expensive plan that can help every American whether they know it or not.
If you are among the millions that paid their bills and lived below their means, the housing crisis is still affecting you – look at your 401k, the value of your property, the decrease in consumer confidence and the increase in unemployment, these problems stem from speculation in mortgage related investment vehicles and declines in real estate values and production. If you own nothing, the plan might help you keep your job and if you have no job, the plan might help get it back.
Nearly 27% of all homeowners are underwater on their homes. The Obama administration’s plan intends to address this problem by decreasing the steady rise in foreclosures and stop the decline in home prices, two things that eat away at the value of real estate across the nation and inhibit an economic recovery. During his speech, Obama reinforced the need of such a plan and outlined the steps involved.
The plan incorporates measures that will help millions of homeowners keep their homes and fulfill their monthly monetary pledges; in addition, it sets industry standards that will help expedite and ensure healthy loan adjustments and promises regulation.
This agenda aspires to strengthen confidence in the economy by significantly increasing the amount of mortgage modifications, keeping interest rates low, and increasing the power of bankruptcy judges in helping families remain in their homes.
1. Step 1 will make it easier for homeowners to meet their mortgage commitments through refinancing or modifying their current mortgages; $75 billion is set aside for this segment of the plan. This portion will help homeowners in foreclosure and homeowners before they default on loans by providing incentives to mortgage holders and servicers for loan modifications. In addition, incentives for homeowners are included to keep them current on mortgage payments. These incentives reduce the overall loses felt by financial institutions and/or mortgage servicers and entice homeowners to stay current on payments. A current outline of the incentives is below:
a. $1,000 to servicers for each loan modification
b. An additional $1,000 each year, for 3-years, as long as the borrower stays current
c. $500 to servicers and $1,500 to mortgage holders if they modify a loan before the borrower falls behind.
d. $1,000 per year, for up to 5-years, used to pay-down the homeowner’s principal balance on their mortgage. The payments contributions occur monthly, as long as homeowners stay current.
e. Up to $10 billion will be “set aside” to insure lenders against future price declines on modified mortgages. If prices decline after a loan is modified, mortgage holders would receive insurance payments based on the home price index.
2. Step 2 gives Fannie Mae and Freddie Mac approval to modify 4-5 million mortgages at current interest rates. Traditionally, borrowers have a tough time refinancing their home if their principal is more than 80% of the home’s value. This portion of the plan will provide instant relief to those families by making it easier to refinance their current mortgage into low interest rate fixed programs.
3. Step 3 will make it possible for bankruptcy judges to modify mortgages so that families facing bankruptcy can afford to stay in their home. The modifications will reduce the family’s mortgage principal to match the home’s current market value so that the homeowner is no longer “underwater” and can afford their mortgage commitment.
4. Step 4 promotes confidence in Freddie Mac and Fannie Mae by increasing government commitments in the financial institutions so that they can continue to offer low interest rate mortgages to responsible homebuyers. This step uses funds allocated in 2008 by the Housing and Economic Recovery Act and is not apart of TARP or TARP 2.
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I know of several Canadian investors looking to buy in the U.S. that are just taking a wait and see approach til they see at least some traction down south. Interesting times.
I don’t know if this is such a good thing. This is going to stop homes from decreasing in value. Now while I must plead ignorance for the rest of the country Southern California is SO overpriced. The median home in LA county is still half a million dollars. $500,000.00 if that looks like a lot of zeros it is because it is. And in the area where I live it is much higher than that. The thing you must understand is this is also for a shack. A really small old house which most likely takes up all of the tiny bit of land on which it sits. These banks let people overextend and caused the problem and the banks should suffer. I remember a few years ago a friend of mine was being pushed by a real estate agent to buy a house don’t worry about how much it is it will double in a year. That is crazy! I’m sorry but the these shacks need to come way DOWN in price so that normal people can afford to buy a house. We shouldn’t punish people that have been trying to save up to buy a house because other people gambled into one. As you can tell I am pretty passionate about the subject.
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Thanks for the article on foreclosure.
Greatly appreciated and bookmarked.
Thanks again
Jamess last blog post..What is The Process of Foreclosure?
Thanks for stopping by James
Surely homeowners need help now. We cannot wait for all the homes to be foreclosed to start spending money on it.
My home is $100,000 upside down. The mortgage company says I do not qualify for a loan modification; they say the only thing I can do is a short sale. Additionally, they stated that the government would have to lower my loan rate to 2%, which they said they would not do? Should I foreclose, short sale; can the mortgage company come after my wages?
LJ
Eh, I don’t understand why I have to pay for “your” house because you couldn’t make your mortgage payment. You are the one who got your self into the situation so why should America have to bail you out. If you spend more than you make this is what happens.
Daniel@bad credit loans´s last blog ..401k Contribution Limits, Rollover and Withdrawal Plan
Well. Having 20/20 hind sight the program doesn’t look like it was much of a success. Does it.
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There have still been far too many homeowners offered loan modifications under the Obama plan. The program was intended to help three or four million home owners, but so far has only resulted in tens of thousands. The banks can definitely do more. Part of the original thought behind the bank bailouts was that they would cooperate with the administrations policies in related matters. It doesn’t seem like the banks have fulfilled the spirit of the bargain on their end.
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This is an interesting and very risky plan to solve the economic crisis i hope that it works.
The plan incorporates measures that will help millions of homeowners keep their homes and fulfill their monthly monetary pledges; in addition, it sets industry standards that will help expedite and ensure healthy loan adjustments and promises regulation.