Reg Gupton here,
I rec'd this summary of the New Housing Plan by a friend, Joan Rogliano. It is the best I have seen.
Say hello and thank you to Joan. Her contact information is at the bottom.
Reg Gupton
We've Done It For You
An Easy to Read Summary of the New Housing Plan announced Yesterday!
Who Will Benefit from the Plan?
* Homeowners that are in distress and at risk of foreclosure.
* Homeowners that are current on their mortgages, have high interest rates, and little to no equity.
* Fannie and Freddie will receive a capital injection of $200 billion from the Treasury Department to increase the amount of available credit.
Who Will Not Benefit from the Plan?
* Those that are trying to either save a non-owner occupied home from foreclosure or want to benefit from newly introduced government backed refinancing guidelines
* If you are in an owner occupied home and you can't afford the home because you have a complete inability to pay, lenders will not be forced to help nor will the government come to your aid.
* Absolutely no aid for speculators or second home owners.
What are the Specific Details of the Plan?
The new program rolled out on March 4th, 2009, focuses on three critical needs:
1. Incentivize lenders to modify loans for distressed borrowers.
2. Provide refinance options for homeowners that are current, but have homes with little to negative equity.
3. Increase the amount of available credit.
Incentivizing lenders to provide loan modifications: Plan is voluntary for mortgage servicers except for Fannie Mae and Freddie Mac and banks that accept help from the government. These institutions must adopt loan modification plans.
* The loan modification plan is for primary residences only, and will benefit borrowers with higher rates, adjustable rates, and interest only loans.
* A Shared Effort to Reduce Monthly Payments: The servicer would reduce interest rates so that the monthly obligation is no more than 38% of a borrower's income, and then the government would contribute money to bring payments down to 31% of the homeowner's income. Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received, if it had reduced the interest rates. Homeowners may be required to enter a debt counseling program as well.
* "Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification. They will also receive a monthly fee of up to $100 annually for 3 years, as long as the borrower stays current.
Incentives to Help Borrowers Stay Current
* Initiatives will provide a monthly balance reduction payment that goes straight toward reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early
* An incentive payment of $500 will be paid to servicers, and $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
Home Price Decline Reserve Payments:
* An insurance fund of $10 billion dollars will be created by the Treasury Department. It will be designed to encourage lenders not to foreclose on mortgages because they fear a further reduction in home prices. Holders of mortgages modified under the program, would be provided with an additional insurance payment on each modified loan that is linked to a decline in the home price index.
On the need to provide refinance options for responsible borrowers:
* Those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible.
* The plan would help borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments. However, the new mortgage, including refinancing costs, can't exceed 105% of the current market value of the property.
* Borrowers with a second mortgage are eligible, as long as their first mortgage isn't more than 105 percent of their home's value.
* The value of the property will be determined after application is made to refinance.
* The government backed refinance program allows borrowers to refinance into 15-year or 30-year fixed-rate mortgage at prevailing market rates.
Increasing the amount of available credit:
* More capital will be supplied to Fannie Mae and Freddie Mac in the amount of $200 billion.
* This capital will be used to add to the amount of available credit to individual borrowers.
* This new injection of capital will allow Fannie Mae and Freddie Mac to expand the size and scope of their mortgage portfolios, perhaps as a safety valve for banks on the brink of insolvency.
Homeowners may be asking "What's the benefit of giving my mortgage servicer my tax dollars to help me save my home?" Actually, it will do a lot of good. Now mortgage servicers can recoup fees and possibly make money by helping with a loan modification.
Before the plan, servicers would receive fees when one of the homes they serviced went in to foreclosure. Now, servicers have a monetary incentive to prevent a home from going into foreclosure. Without such payments, servicers might continue to foreclose on securitized mortgages, even when foreclosure is not in the interest of the borrower or the lender.
This will also be reflected in more stable home values for everyone due to a reduction in foreclosures.
These monetary incentives are the key to the Obama plan. Moreover, these incentives set this new plan apart from past attempts to stem the tide of foreclosures.
Joan Rogliano
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