Who Will Benefit from New Obama Housing Plan

President Barack Obama’s administration activated a new housing assistance plan aimed at helping Americans avoid foreclosure. The plan is called the Homeowner Affordability and Stability Plan and earmarks $75 billion towards helping homeowners in two ways. The first involves refinancing to lower rate loans and the second involves awarding incentives to lenders to encourage them to modify existing loans.

The refinancing portion of the plan is aimed at homeowners who have stayed current on their mortgage payments yet have been unable to refinance because of a severe drop in their homes’ value. Under current standards homeowners with less than 20% equity in their homes have almost no chance to refinance. The new standards should be a great help. Homeowners will be eligible as long as their debt does not exceed 105% of the home’s value and the loan is owned or guaranteed by Fannie Mae or Freddie Mac(officials are still seeking participation from other loan servicers). Borrowers will have to provide proof of sufficient income to afford their loan payments.

The loan modification portion of the plan is intended for homeowners who are at risk of foreclosure or already in foreclosure. To qualify, a mortgage has to have originated before January 1st, and the amount owed must be no more than $729,750. For eligible loans, loan servicers or lenders will reduce the borrower’s monthly payments to 31% of gross income. The reduction will be accomplished through lowering of interest rates(2% minimum) or extending the term of the loans. The reduced payments would then remain the same for 5 years before gradually reverting back to conforming rates at a maximum of 1 percent per year. Homeowners would also be eligible for a reduction in their loan’s principal(max. $1,000 per year over 5 years) for making payments on time. The program will be available until Dec. 31 of 2012 and homeowners can qualify only once. Investors and speculators will not qualify for the program as the property in question must be owner-occupied.
Likewise, irresponsible borrowers who mis-represented income will be screened out.
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