President Obama’s plan would greatly expand mortgage relief to those who have not missed payments and those whose homes are worth less than their mortgage.
What the program will not do, administration officials insisted, is reward the unwise or the greedy. Nor will it provide much help to those in the highest-priced areas, though it does reinstate last year’s higher loan limits for refinanced or modified mortgages to $729,750 in more expensive areas.
“The plan is not intended to prevent every foreclosure or help every homeowner,” said a senior Treasury official who briefed reporters on condition of anonymity. “It is targeted at responsible homeowners. It will do nothing for speculators or flippers.”
Lenders and brokers said reinstating higher caps for eligible loans would help certain borrowers whose mortgages were purchased or backed by Fannie Mae and Freddie Mac.
The higher cap had expired at the end of December, reducing eligible loans to $625,500 in more affluent regions such as Los Angeles. The higher limits the Obama stimulus plan reinstated last month expire at the end of this year.
It remains to be seen whether the program will fulfill the administration’s broader hopes of helping 7 million to 9 million Americans get new mortgages and stem the tide of foreclosures that continue to erode the housing market.
At heart, the housing rescue plan remains voluntary for lenders, though any financial institution receiving government capital going forward will be required to take part. The idea is not to prevent all foreclosures, but to curb those the government deems “unnecessary”—loans to responsible borrowers doing their best to stay in their home during rough economic times. In most cases, officials said, avoiding foreclosure not only helps families but recoups more of a lender’s investment.
“This plan will help make home ownership more affordable for 9 million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans,” said Housing and Urban Affairs Secretary Shaun Donovan.
The administration has dubbed the housing plan the “Making Home Affordable” initiative, and it has two main parts. One is aimed at prudent but “underwater” homeowners who would like to refinance into a lower rate, and the other at borrowers facing financial hardship who are seeking a way to lower their monthly mortgage payments. Both programs are limited to borrowers who live in their homes, owe no more than $729,750 and fully document their incomes.
The programs are effective immediately, though it may take some time for lenders and servicers to implement them.
“There are lots of borrowers who are significantly under water in California [and other expensive areas] who will be able to get into a sustainable mortgages under the program,” said the senior White House official, who briefed reporters on conditions of anonymity.
The first part of the program, called “Home Affordable Refinance,” is aimed at homeowners whose property has lost value as housing prices have plummeted. It would be open only to borrowers with so-called conforming loans backed by Fannie Mae and Freddie Mac, and it would waive the usual conforming requirement that the borrower have 20-percent equity in the home.
The program would not reduce the principal of the loan, but it would allow the borrower to refinance that principal up to 105 percent of the home’s current value. Usual fees would apply, though for many borrowers the procedures would be streamlined.
Interested borrowers would need to contact their loan servicer to determine whether their mortgage is held or guaranteed by Fannie Mae or Freddie Mac. Loans made with the support of other government agencies, including the Federal Housing Administration, the Department of Veterans Affairs or the Department of Agriculture, are not eligible.
The second program, called “Home Affordable Modification,” is more complex and is aimed at borrowers whose mortgage payments have become unaffordable—either because of a hardship such as job loss or illness, or because the interest rate has been reset higher on an adjustable-rate mortgage.
For those borrowers, the government would provide cash payments and financial subsidies to help the lender lower the monthly payment to as much as 31 percent of the borrower’s gross monthly income.
In most cases the lender would reduce the interest rate on the loan to as low as 2 percent for five years. If that was inadequate to bring down the payment, the lender also could extend the term of the loan to 40 years or temporarily reduce the loan principal. In those cases, the set-aside portion of the loan principal would be repaid to the lender in a balloon payment when the house was sold or refinanced.
The 31-percent target income level would only apply to the borrower’s primary mortgage payment; second mortgages, home equity loans and other consumer debt would not be included in that calculation.
However, administration officials said they will offer additional financial incentives to servicers to reach agreements with second lien holders to accept partial repayment of those debts. Details of that policy are still being worked out.
“There is long-term affordability built into the plan,” the White House official said. (Los Angeles Times)
No comments:
Post a Comment