The recently announced Homeowner Affordability and Stability Plan is a sweeping effort to stem the national tide of foreclosures and to help as many as 9 million homeowners stay current on their mortgages. Here’s a look at what the plan will entail and who will be eligible for assistance.
Basics of the Plan
The nationwide foreclosure problem has caused a ripple effect of lowering home values throughout individual communities. The Obama administration’s plan marks the largest government response since the beginning of the housing crisis. At its core are three main strategies:
1. Secure refinancing for as many as four million responsible homeowners, with the goal of making monthly payments more affordable
2. A $75 billion stability initiative to encourage lenders to modify loan terms for three to four million mortgages at risk of foreclosure or already in foreclosure.
3. Additional financial support for Fannie Mae and Freddie Mac.
Under traditional rules, homeowners who owe more than 80 percent of their home’s value cannot easily refinance their mortgage. Many homeowners who have paid money down and are current on their monthly payments have seen their home’s value drop enough that they lack the necessary equity to qualify for refinancing.
Under the Housing Affordability and Stability Plan, qualifying homeowners would be able to refinance their mortgages to current rates, making monthly payments more affordable. For those borrowers who are currently facing high rates following an ARM reset, the plan offers a chance to switch to a lower fixed rate mortgage.
Who Qualifies – In order to qualify for this portion of the plan:
Homeowners with second mortgages will also be eligible but with additional restrictions. Along with the 105 percent limit, borrowers must be able to prove that they can still meet payment terms on the original loan and the lender must agree to keep the original loan in “primary position” in terms of monthly payments.
Who Doesn’t – While some details of the plan have not yet been released, initially it appears that the following groups of borrowers may not qualify for this portion of HASP:
The second portion of the plan is designed to provide relief to homeowners whose loan payments have risen to 40 or even 50 percent of their monthly income. The plan’s goal is to reduce the total monthly mortgage payments for struggling homeowners. To do so, the Financial Stability Plan has allocated a total of $75 billion in incentives that should encourage lenders to modify loan terms.
Some components of the plan include:
Who Qualifies –
Who Doesn’t – The administration has indicated that the following categories of borrowers will not qualify for this portion of the plan:
Support for Fannie and Freddie
Using money authorized by congress in 2008 under the Housing and Economic Recovery Act, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac by $200 billion total. Specifically, Treasury will increase Preferred Stock Purchase Agreements to $200 billion each (from the previous level of $100 billion each).
The overall goal behind this move is to increase confidence in the two mortgage giants and by doing so support the continuation of low mortgage rates.
Other Provisions in the Plan
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