Today Obama’s plan to save millions of homeowners from foreclosure was released. It appears to be an outline and more details are to come. The Treasury said that it is going to take some time to find out how many of the estimated 9 million borrowers this plan is targeted to help.
The plan is going to provide a standard for Mortgage Servicers to determine and to speed approval for more affordable loans to borrowers in trouble. Mortgage Servicers are the companies who receive mortgage payments for the investors of the mortgages. Currently Mortgage Servicers are over whelmed with borrowers requests for help to avoid the loss of their home. Many Mortgage Servicers will not help borrowers in trouble because the investors in the mortgage will not allow them.
The plan is hoping to help 2 groups of homeowners. First, homeowners who can no longer afford their homes because of loss of job/income, who are in loans that interest rate changed because of Adjustable Rate Mortgage, or borrower who did “liers” stated income loans to qualify for the home loan.
The 2nd group are borrowers who can not refinance because of their home is valued at less than what they currently owe. These borrowers are up side down and the Treasury is looking at allowing borrowers to refinance up to 150% of the current value of their home.
What you need to do to qualify for these “affordable loans”.
You must live in the house. Primary Residences only. No 2nd homes or investment propertied.
Borrowers in Bankruptcy may be eligible
The max loan is $729,750 Up to $1.4 million for multi family homes.
You will have to prove you are in default or facing default.
The plan will look at a 3 step process to lower your monthly mortgage payment to 31% of your gross income.
1st they will look at lowering your interest rate. The rate may be as low as 2%. The Treasury expects 70% of eligible borrowers to be offered these affordable terms.
2nd If lowering the interest rate is not enough then they will extend the term of the mortgage up to 40 years. This will help an estimated 20% of eligible borrowers.
3rd. And if the lower rate and longer term does not reduce the monthly payment to 31% of the borrowers income then they will look at reducing part of the principle balance and adding it to the end of the loan with a balloon payment.
There are many unanswered questions and major potential problems with this plan. The plan only addresses 1st mortgages and not 2nd mortgage and HELOC. It also is trying to help homeowners who did not buy more home than they could afford. It does not state how they will determine “more than they could afford”. It does not address homeowners who refinanced after they purchased their home. Mortgage Servicers my face law suites from investors who will have their returns lowered by reducing interest rates for these buyers. This is was not addressed and I would assume No Mortgage Servicers is going to lowers a borrowers interest rate to 2% with out the approval from the investor.
We don’t know when the plan will go into effect. I sure the Mortgage Servecers and Investors will have to come to agreements with the Treasury before this Plan goes into effect. Once this is done we will see how many homeowners this actually helps. I hope it is a lot because this could stop the problem with home values falling because of foreclosures and short sales.
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