Friday, February 20, 2009

Details on the Homeowner Affordability & Stability Plan

This week, 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 communities. This is great news for everyone! If you are already a home owner this applies to you, if you are looking to buy this is good information to know as it shows the government is going to be putting a lot of money toward halting foreclosures and thus getting this market to turn around faster than expected.

The plan contains three main components, and only applies to primary residences not investment properties. The loans referenced in the plan cannot exceed Freddie Mac/Fannie Mae conforming loan limits.

I've outlined the plan in greater detail below.

First component - 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.

Second component - the Homeowner Stability Initiative - 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 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.

Third component - 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.

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.

I will keep you updated on the Homeowner Affordability and Stability Plan as more details and information become available to us.

As always, if you have any questions or concerns, please do not hesitate to contact me directly at 858.652.1218 or at