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Millions of Homeowners May Benefit from Presidential Bailout Plan
President Obama's "Homeowner Affordability and Stability Plan" may save as many as 9 million people who are in danger of losing their homes, most in areas with low-cost housing.
The plan, due to begin March 4th, earmarks 275 billion dollars to aid homeowners. Included in the plan is a refinancing program for those who make payments on-time and whose outstanding loans are higher than their homes' value. There are also incentives for lenders to encourage the modification of some mortgages. California, New York, and other areas with high priced real estate won't see relief right away as federal aid intended for higher income homeowners won't come until later.
The refinancing provision of the plan, aimed at helping 4 to 5 million homeowners who have less than 20% equity obtain new loans, with lower interest rates, with a cap of 105% of the current value of the home. Only homeowners with mortgages held by Freddie Mac or Fannie Mae are eligible. This makes many California and other high cost real estate areas ineligible, as most homes cost more than Fannie Mae and Freddie Mac limits.
Another portion of the President's plan involves loan modification and is aimed at 3 to 4 million homeowners who are considered "at risk" or whose mortgages are higher than the value of their home. Different from a refinancing, a loan modification alters terms of the current loan rather than writing an entirely new one. Loan modifications will benefit high-cost areas more than refinancing. Available to owners of any-value homes, this provision aims to reduce payments to 31% of the owners income. Methods include reducing interest rates or principal, extending the loan, or both. The provision calls for incentives to homeowners and lending agencies alike. Lenders can get up to $4 thousand for modifying mortgages while homeowners are eligible for a reduction in principal up to $5 thousand over 5 years provided they don’t miss payments.
Also, the plan earmarks $200 billion for Fannie Mae and Freddie Mac. This should drive interest rates down and lead to more borrowing. And, finally it alters bankruptcy rules to allow judicial mortgage modifications to reduce mortgages provided the beneficiary of the ruling sticks to a payment plan designed by the court.
Marin Real Estate Blog
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