I received this today as an email from the California Assn of Realtors:

Earlier today, 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.  I’ve outlined the plan in greater detail below.

For a free Homeowner’s Guide detailing the plan, Making Home Affordable, click here.

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.

We’ll keep you updated on the Homeowner Affordability and Stability Plan as more details and information become available to us.

Sincerely,
James Liptak
2009 President
CALIFORNIA ASSOCIATION OF REALTORS®

My Thoughts…..

I’ve been looking forward to see what President Obama had up his sleeve in this area and I guess this spells some of it out, but I’ve got a lot of questions….

1.  “The loans referenced in the plan cannot exceed Freddie Mac/Fannie Mae conforming loan limits.”

Are they talking about the old $417,000 limit or the new $600-$700K loan limits if you fall into one of the areas that have higher limits at the moment?

2.  “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.”

First of all, what about the folks who’s loans are NOT guaranteed by Freddie or Fannie?  A lot of the folks that are hurting right now are in trouble because of having a subprime loan and most of those loans were ineligible to be sold to Freddie or Fannie.  Are these folks just SOL?

3.  “The second component, known as the Homeowner Stability Initiative, is designed to assist homeowners who are “underwater” on their mortgages.  Primary mortgages would be reduced to monthly payments that do not exceed a 38 percent debt-to-income ratio.”

Okay, this one scares me a LOT!  What are the “income qualification” guidelines?  Does unemployment work?  Can you imagine being on unemployment and getting a loan that has to conform to the 38% DTI guideline?  Say you were getting $1000 a month on unemployment.  That means your mortgage payment, including taxes and insurance, couldn’t exceed $380.00???????????   WHAT?????  I want one-a-them loans!  There has to be more to it…..I’ll be looking forward to finding out what!

4.  “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.”

For how long?  If they’re giving away 30 year fixed rate loans at such great rates and payments, we may see a complete shift in how often folks refinance.  If I got one-a-them loans at $380 a month, I’d KEEP THAT SUCKER FOR 30 YEARS!  How many of these are the government and lenders going to foot the bill for?  I can see the government doing it long term, but the lender is never going to agree to that, I’m sure!  Again….there HAS to be more too it…..

5.  “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.”

Humm…….define “imminent default”?

6.  “The final aspect of the Homeowner Stability Initiative is creating clear and consistent guidelines for loan modifications.”

These are the areas I’m going to be waiting for.  It’s going to be interesting to see how the above areas are addressed.

You have to hand it to President Obama though.  He’s been in office less than one month and is already making a difference.  We’ll just have to wait and see whether it’s going to be good or bad.  I’ll be keeping my fingers crossed.

Please leave any  opinions and comments about all this below.  I’d love to hear your take on the situation!