President Obama has released details of the $75 billion Homeowner Affordability and Stability Plan, which will provide access to low-cost mortgage refinancing for homeowners hurt by falling home prices, as well as create an initiative to aid approximately 3 million to 4 million homeowners at severe risk of losing their homes.
Altogether, the plan will help up to 7 million to 9 million families restructure or refinance their mortgages to avoid foreclosure, according to a fact sheet released by the White House. Speculators will be ineligible for all components of the initiative.
‘The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan,’ states an official White House blog post. ‘Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.’
Eligible loans for refinancing will include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the property's current market value.
Loan servicers will receive an up-front fee of $1,000 for each eligible mortgage modification meeting guidelines established under this initiative. They can also obtain ‘pay for success’ fees – which are awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
In addition, to further encourage loan modifications, the Obama administration, together with the Federal Deposit Insurance Corp. (FDIC), has developed an partial guarantee initiative.
The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
Other important measures outlined in the plan include new oversight, reporting and performance-monitoring requirements under guidance of the Treasury, the FDIC, the Federal Reserve and the Department of Housing and Urban Development; allowing ‘judicial modifications of home mortgages during bankruptcy for homeowners who have run out of options’; providing $1.5 billion in relocation assistance to renters forced out by foreclosure; increasing the flexibility of certain Federal Housing Administration programs; and upping funding commitments to Fannie Mae and Freddie Mac, as well as increasing the size of the entities' retained portfolios.
Further information on the plan is available at www.whitehouse.gov
SOURCE: White House