So Cal Real Estate News

President Obama greets Arizona high school students after announcing his housing plan Wednesday

2/20/09 Details continue to emerge on the President’s newest plan directed at helping those in trouble with their mortgage. One of the better summaries I’ve seen so far was in an e-mail I received from James Liptack, President of the California Realtors’ Association:

This Wednesday President Obama unveiled the Homeowner Affordability and Stability Plan, which will offer assistance to as many as 9 million homeowners, while attempting to prevent the destructive impact of foreclosures on families and communities.

The plan contains three main components, and only applies to primary residences. The loans referenced in the plan cannot exceed Freddie Mac/Fannie Mae conforming loan limits.   [Note from Dave:  In California there are 2 "conforming loan" limits in 2009:  The "normal" conforming loan limit of $417,000, and the "jumbo conforming" loan limit of $625,900.  So far I haven't been able to figure out which limit is being referenced--if you have a reliable link or statement that clears this up, please let us know in the comment box below]

The first component is directed toward homeowners suffering from falling housing prices who still have equity in their homes, but no longer have the 20 percent equity needed to refinance.  Under the plan, homeowners who have conforming loans  owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity left in the house. The U.S. Treasury Dept. estimates that about 5 million homeowners will be helped by this portion of the program.

The second component, known as the Homeowner Stability Initiative, is designed to assist homeowners who are “underwater” on their mortgages. The $75 billion initiative will bring together lenders, servicers, and the government so that all stakeholders share in the cost of the modification.  Primary mortgages would be reduced to monthly payments that do not exceed a 38 percent debt-to-income ratio, with the costs of doing so borne by the lender. The government and lender then would split the costs of further reducing the monthly payments until they were at a 31 percent debt-to income ratio. An important aspect of the initiative is that homeowners do not have to be delinquent to participate.

The Homeowner Stability Initiative also will create incentives for servicers, mortgage holders, and homeowners. Servicers would receive an up-front fee of $1,000 for every eligible modification meeting the initiative’s guidelines. Guidelines are scheduled to be released by March 4. Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default.

The final aspect of the Homeowner Stability Initiative is creating clear and consistent guidelines for loan modifications. The Obama Administration plans to work with federal agencies, banking and credit union regulators, and the private sector in order to develop loan modification guidelines that can be implemented across the entire mortgage market. While adoption of the guidelines will be voluntary for the private sector, all financial institutions receiving Financial Stability Plan assistance going forward will be required to implement the loan modification guidelines.

The government estimates that between 3 and 4 million homeowners will benefit from the Homeowner Stability Initiative component of the plan.

The third component of The Homeowner Affordability and Stability Plan is supporting low mortgage rates by strengthening Fannie Mae and Freddie Mac. The Treasury Dept. plans to increase their Preferred Stock Purchase Agreements with both Fannie Mae and Freddie Mac from its current $100 billion in both entities to $200 billion in each. The Treasury Dept. also will continue to purchase Fannie Mae and Freddie Mac mortgage-back securities in order to help promote stability and liquidity in the marketplace.  Additionally, the Treasury Dept. will increase Fannie Mae and Freddie Mac’s portfolios by $50 billion, for a total of $900 billion. The Obama Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving home buyers, such as CalHFA. Funding for this will not come from TARP money but from the Housing and Economic Recovery Act.

While some of the details still are being developed, such as the modification guidelines, the Obama Administration plans on using programs and funding already allocated for The Homeowner Affordability and Stability Plan and will need little legislative approval for programs under the plan.

More details will emerge over the weeks ahead.  This is a controversial plan that would have done a lot more good a year ago before the foreclosure crisis spun out of  control to the current economic debacle.

My mother would say it’s like “closing the barn door after the horses are already out.”

For a number of perspectives on how helpful these programs will be to the Orange County real estate market, check out “$75 billion mortgage aid will help few O.C. home owners” by the Register’s mortgage blogger and writer, Mathew Padilla.

For borrowers having trouble making payments, it’s usually a good idea to start with a call to your lender to see what they can do.

You might also find the Chicago Tribune’s Q & A on Obama’s plan helpful.

As always, if you want to discuss your specific situation, especially in your property is in the Greater Long Beach or West Orange County area, feel free to give us a call at 562.430.0262.

Tags: foreclosure relief

This entry was posted on Friday, February 20th, 2009 at 8:12 pm and is filed under The Mortgage Mess. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.