Standing before a crowd of tens of thousands in Phoenix, AZ, a city and state hit hard by the deepening recession, President Obama announced the Homeowner Affordability and Stability Plan that will pump $75 billion dollars into helping homeowners who are struggling to avoid foreclosure. The plan, which the administration hopes will reach out and help over 9 million people, is the administration’s first attempt at stemming the rising tide of home foreclosures which has been a major factor in the deep recession the US now finds itself in.
The plan aims to help homeowners on several fronts by throwing a wide net to help not only those who are currently facing foreclosure, but also those who are facing the possibility of foreclosure because of the rapidly changing economic climate. The program will begin on March 4th, 2009.
The initiative aims to help homeowners through a series of programs tailored towards different scenarios:
- Homeowners who find themselves “upside down” on their loans where they owe more than the home is worth, but are otherwise current on their mortgage payments, will be eligible for a refinancing program to help them get their mortgages back in balance again.
- Homeowners who are creditworthy and have shown good faith in trying to maintain their mortgage payments are eligible to apply for refinancing to help lower the interest rate, and therefore the payments, on their loans to more affordable levels at a fixed rate. This program may help millions who are facing rising payments because of adjustable rate mortgages (ARM) increasing teaser interest rates to higher figures.
- Homeowners who are facing immediate foreclosure will benefit from incentives being offered to lenders to work with homeowners to modify existing loans so that the borrower can afford to keep their home.
- Mortages held by Freddie Mac or Fannie Mae will be eligible for refinance and modification of the principal amount of the balance. Mortgages securitized by other lenders will be eligible to be brought into Freddie or Fannie as long as they meet loan requirements from these institutions.
- Lenders will be encouraged, through incentive programs, to bring loan payments down to less than 38% of household income. Through subsidy programs, the program aims to help bring this number down to 31% of household income as a maximum payment.
- The program aims to make the entire process easy for homeowners. Lenders will be encouraged to automatically determine who is eligible and notify them of their options. After March 4th letters will be sent out to homeowners who qualify notifying them of their status.
The Obama administration stressed that the most important thing homeowners facing immediate foreclosure can do is to contact their lender. Most lenders have enacted a quiet period of postponing foreclosures until this new program is put into place.
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Written by Alex Rolim.
