Overview Of Obama?s Plan To Stop Foreclosures

November 15th, 2009 by admin

The long wait is over. Finally, U.S. President Barack Obama has released his plan to halt foreclosures in the country, and thus boost and stabilize the housing market.

According to Obama, the coverage of his Homeowner Affordability and Stability Plan is wide enough to protect communities and neighborhoods across the U.S. from the negative impact of foreclosures.

He gave an assurance that his foreclosure prevention plan will focus on homeowners who are responsible borrowers and not on those who showed risky behaviors.

Under the plan, the federal government will provide an additional $200 billion to Federal Home Loan Mortgage Corp. and Federal National Mortgage Association to allow them to modify loans that both mortgage providers owned and guaranteed. Homeowners who are eligible for loan modifications are those whose mortgages are not less than 80 percent and not more than 105 percent of their properties? fair market value.

Additionally, the Treasury Department will used $75 billion from its financial bailout fund to subsidize cash incentives to encourage lenders to modify loans. Lenders will receive $1,000 for every loan modification they make. This would ensure that owners of distressed properties will shell out not more than 31 percent of their pretax income as monthly mortgage payments.

Also, homeowners would get a $1,000 balance reduction on their principal loan every year for five years if they remain current on their mortgage payments.

These measures are expected to help between 7 to 9 million American homeowners refinance and avoid foreclosures.

Obama focuses his foreclosure prevention plan on helping mortgages that could be salvage rather than promising help to every borrower of subprime loans. His plan is an improvement over previous programs in that it provides mortgage servicers incentives to modify loans. This could convince mortgage-security investors who showed resistance to the idea of loan modification.

Jamie Dimon, chief executive officer at J.P. Morgan Chase, said that the initiative to reduce the number of foreclosed homes could motivate his company to modify over a million mortgage loans.

Meanwhile, the initiative?s subsidy measure ensures that mortgage lenders would reduce interest rates by 38 percent of homeowners? pretax income. The subsidy is limited to 50 percent of the cost of reducing interest rate from 38 to 31 percent.

This measure will benefit homeowners who are unemployed and struggling to pay their monthly mortgage payments.

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