Homeowner Stability Plan Begins

Posted by: Chris Palmeri on March 3, 2009


For millions of troubled homeowners, help may finally be on the way. On March 4 the U.S. Treasury Dept. is expected to begin implementing the Obama Administration’s $75 billion, Homeowner Affordability and Stability Plan.

The Obama plan, originally announced on Feb 18, aims to keep some five million owners in their homes by streamlining the process of modifying troubled loans. The plan addresses some of the major obstacles that homeowners have faced when trying to avoid foreclosure. Mortgage servicers—the companies that process payments on behalf of the ultimate owners of the loan—will now have a financial incentive to change the terms. They’ll get paid $1,000 per loan modification. Government funding could knock as much as three percentage points off of the rates borrowers pay. The Treasury may announce more details on rates tomorrow.

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The biggest change is the introduction of a simple formula for calculating monthly payments. In the past, banks tried to help borrowers who had fallen behind by tacking missed payments onto the principal of the loan. That did not reduce the monthly payments. As many as half of all borrowers who get put in such payment plans end up defaulting again. Under the new program, mortgages will be restructured so that home payments account for no more than 31% of the borrower’s monthly income. All debt payments, including car loans and credit cards, will be no more than 55% of pre-tax income.

Under the current plan, borrowers will not have to be late in their payments to qualify for a loan modification. Borrowers who are “underwater,” i.e. they owe more than their house is worth, will also be allowed to refinance so long as their first mortgage does not exceed 105% of their home’s value. Previously only borrowers with at least 20% equity in their homes could refinance. The real estate Web site Zillow.com estimates that only about 25%—or 14 million borrowers—have home values high enough to support refinancing under the new program terms.

Borrowers seeking help negotiating with lenders will be encouraged to use counselors approved by the U.S. Dept. of Housing and Urban Development (HUD). These non-profit firms, such as NeighborWorks America, the Neighborhood Assistance Corporation of America, Acorn, Catholic Charities and the Urban League, are paid by the federal government to run programs for homeowners in trouble. They typically contract with hundreds of other counseling services across the country, both to negotiate new loan terms and counsel borrowers on overall household budgeting. Their services are free. “If you’re paying for foreclosure prevention services, you shouldn’t be,” says Douglas Robinson, a spokesman for NeighborWorks.

The Obama plan will not address all homeowners in trouble. Only loans insured or owned by Fannie Mae and Freddie Mac will be part of the program. Borrowers can call their lender and find out if that is the case with their loan. Many borrowers unlikely to benefit are those who took out “jumbo” loans when the old limit was $417,000 as well as those with poor credit who took out toxic subprime loans which Fannie and Freddie did not insure. The government-run Web site, financialstability.gov, will have more information about the program.

The plan also doesn’t does not address borrowers who have no income, such as those who have recently been laid-off. Citigroup announced on March 3 that it would lower payments to $500 a month for three months for borrowers who have lost their homes. Other banks may follow.

The Treasury is also expected to unveil a formula that will help lenders decide if it makes sense to foreclose on the property or work out some kind of modification with borrowers. The formula will be based on the net present value of the home, with discounts applied to the expected loss a bank would take in a foreclosure. “That kind of rational analysis is exactly what’s needed,” says Austin King, who heads housing related issue for the advocacy group Acorn. “There has never been a consensus. There are so many foreclosures that make no sense.”

Reader Comments

RON

March 3, 2009 9:03 PM

Here we go again !!! this new plan isn't going help most americans stay in there homes !!! There are so many homeowners a cross the US who have 2nd mortgages and they can't ref because there home values have come down !! Say there credit is in great shape but they have NO EQUITY !!!

THE BANKS NEED TO LEND MONEY OUT ASAP OR THE HOUSING MARKET WILL GET ALOT WORSE !! WORSE THEN THE GREAT D ........... THE D word isn't something we all want to here but its coming if we don't work with the banks !!!

All Americans need to try workout there own plan to stay in there homes and stop wait for our government to step in because there not going to help !!

GOD BLESS AMERICA

Viking

March 3, 2009 9:19 PM

We expect banks and auto companies to pay back the loans they get from the taxpayers.How about these homeowners who got in over their heads.Will they pay back the money they get from the taxpayers?? I suspect not,but that is OK,because they were fooled when they signed the loan documents,so the rest of us should feel sorry for them and forgive them the debt.With policies like this,we are encouraging the very behavior we should try to get away from and punishing those of us who have been living responsibly within our means!!

steve

March 3, 2009 10:05 PM

Next to the last paragraph, second sentence should read: "for borrowers who have lost their jobs."

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Ryan

March 3, 2009 10:45 PM

I hope that there are more "free" HUD counselors out there because i tried 4 different times to speak with Countrywide and was on hold for hours. I ended up going with an attorney ( cdloanmod.com ) to negotiate my loan modification, i figured i would leave it to the experts as i dont have enough time for this and i think they will get me the best result. Lets wait to see what else comes out tomorrow.

Peter

March 3, 2009 10:48 PM

This might help 5% or so...

john degroot

March 4, 2009 1:27 AM

what are the people who don't happen to have a loan tied to freddie or fannie sapposed to do? it seems as tho there ought to be something out there that is available

Patrice

March 4, 2009 9:19 AM

My mortgage is not behind but i have let evything else go so i can keep up. Please tell me what to do and who to call, i have tried with some people and they are asking me to be late and charing money. please help i don't know where to turn

Tammy Arwood

March 4, 2009 10:07 AM

Thank you Obama, This will save us from losing our house! I hope it works.

Jim Myers

March 4, 2009 10:54 AM

How could anyone put their faith in ACORN...They should be stripped of all their tax exempt rights...voter fraud is treason!!!!!

Pat

March 4, 2009 10:57 AM

With all due respect, the efforts put forth to address the housing crisis are half-hearted at best and this is another waste.

Housing investors are an easy key to stabilize the housing market. Significant housing is owned by investors - rentals, second homes, vacation property. I want to first define investor as one who has the ability to qualify for a mortgage, not the unqualified ones mortgage companies threw loans to because they were breathing to create the housing bubble. These capable investors, through tax breaks and interest rates that are reasonable for today (not the 7% to 9% rates that are being charged) would be the easiest to get back on board in a much more cost effective manner than the same $$$ applied to owner occupied housing.

Though it appals me, eliminating the mark to market rule for banks and mortgage companies would also be another fiscally simple facet that would prop up the housing market on both sides of the equation buyer and seller. The ramification of these three simple actions would save owner occupied homeowners simply by stabilizing the market and allowing value to be preserved and grow again in their home.

lisa katsirubas

March 4, 2009 1:20 PM

If the banks need money why not build a plan to pay off peoples credit cards.that way they get it back you know who got it and how much and people will start to use them again and the shopping and spending will go on helping the econamie.Most people are indeat for useing there card for gas.

Linda

March 4, 2009 1:28 PM

The plan slights the military (gee, imagine that!) Many military owned homes are not owner occupied due to frequent moving around. The plan mandates owner occupancy.
Thanks Barack!

Carolyn Wall

March 4, 2009 1:45 PM

I have put in a hardship request with my mortgage company, Countrywide, for a loan modification. I submitted the paperwork in October shortly after I began treatment for cancer and the medical bills started piling up. We have been in our house since December 1999. I lost my job shortly after that, but found another, making less money. My husband lost his job of nine years in January 2008 at the beginning of this financial crisis. He found another job, making less money. We are having a tough time,and live paycheck to paycheck trying to keep up with every monthly bill. We don't go out to eat. We don't go on vacations or buy much of anything for the house or ourselves. My request for a loan modification has not been answered. Countrywide asked for our recent paystubs since they had not acted on my request and the time had run out. So I sent in our recent paystubs again. Still haven't heard. We are behind in our mortgage payments, but continue to send the mortgage, sometimes later than I'd like, but we send it. I don't know where else to turn. We are paying over 9 percent interest and about 40 percent of our monthly income.

Christy

March 4, 2009 2:48 PM

I would like to address the "elephant" in the room. For "stated" income loans where the mortgage broker worked the loan calculator backwards and told the buyer what income they needed to state (under perjury)in order to qualify for the loan...these people are referred to either as liars or victims depending on what side of the table you are on..are they eligible under this plan or will there be legal consequences waiting around the bend for lying on the loan docs?

D.J.

March 4, 2009 3:30 PM

Why would they mortgagee reduce payments to $500 for someone who has already lost their home? Did you mean lost their jobs? See paragraph 7.

bill

March 4, 2009 6:36 PM


why does the program only cover fannie and freddie mac loans what about the other housing loans in trouble. is there any help if you have an fha loan.
i am currently running off of one income and am just a short timme from foreclosure. is there a chance for me

j evans

March 4, 2009 8:36 PM

how do we get the details and application forms?

Katelyn

March 4, 2009 10:05 PM

is there help for people who do not have Freddie/Fannie loans such as people with loans through HSBC?

Rita Anderson

March 5, 2009 10:08 AM

I really need help my husband died in July and I had to do chapter 7 need help with keeping my house, and business. Thank You

Olean S. Murray

March 5, 2009 8:15 PM

I, Olean S. Murray have a mortgage in Sumter,SC and my mother Phillis Scott is 97 years old and we are in jeopardy of foreclosure. We are asking for assistance immediately and appreciate your help in this matter. Thanking you in advance.

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Oscar Cuevas

March 6, 2009 2:01 AM

i think every body that is been paying there house and is not behind should get help. not only loands with Freddie Mac and Fannie Mae.

steve

March 6, 2009 11:29 AM

how do you apply

Christi

March 7, 2009 2:03 PM

So, there are non-profits counseling and directing people to modification companies that can negotiate w/ the lender? But the counsel is the only thing free, right? Ultimately there is a cost incurred if they use a modification company's services. Are there programs that will negotiate w/ the lender to get your principal and interest rate down for free? I find it hard to believe that someone can get someone can get something for free...there has to be some string attached. Also, are all lenders formulating new pymts. based on the net present value of the home? What exactly does "net-present value" mean? Any idea how long it is going to take lenders to implement this program or is it available now? Do they HAVE to comply?

BWilds

March 8, 2009 10:21 AM

Will this silver bullet work as well as the last government program that was going to help some 400,000 homeowners?

If I recall it was put up on a shelf after only "25" people qualified to be helped.

They say "talk is cheap", but not if it comes out of Washington!

BRAMBLE

March 8, 2009 10:39 AM

IN MICHIGAN WE HAVE HOMES WITH BALANCES OF $ 130,000.00 AND THEY ARE WORTH $ 65,000.00. WHAT GOOD IS A PROGRAM THAT LENDS ON 105% OF A HOMES VALUE. I THOUGHT THE FEDS WERE GOING TO USE TARP MONEY TO BUY UP SOME OF THESE TOXIC LOANS. MY ADVICE TO OSAMA OBAMA IS TO GO BACK TO DRAWING BOARD. HE IS LONG ON TALK AND SHORT ON DETAILS. BRAMBLE - MICHIGAN REALTOR FULL TIME - FULL SERVICE FOR 25 YEARS.

GODWIN GREENSPAN

March 8, 2009 11:17 AM

I AM HAPPY ABOUT YOUR PROJECT CLASSIFIES AND WANTED TO BE PART.
DO YOU ALSO DEAL WITH AFRICA COUNTRIES?

Daniel Richards

March 8, 2009 2:18 PM

"Play Chicken Anyone?

Finally, it is in national print, "There are so many foreclosures that don't make sense". I.E. banks refuse to cram down loans, homes are foreclosed on, the house is sold at auction for a net loss of $70,000 more than what could have been worked out pre-foreclosure, and where is the sense of that?

It is crazy making! What is possibly behind this kind of insane decision making? Is it the fact that banks are covered by PMI and thus are protected from loss? Or could it be a big game of "Chicken"? Come on Congress, give bankruptcy judges the power to bring sanity to this coop.

Concerned for Americans

March 10, 2009 9:02 PM

The whole thing is a joke! My credit card, who just chnaged from providian to "Chase" called me regarding a payment that is not due for 7 days. I asked her where she was calling from, she said India. I could hardly understand her, and I asked for a english speaking person, she could not do that. It gets worse, I made a payment over the phone last month with another India person, now my payment has been lost in lala land. Meanwhile I get charged late fees and penalties. Are we dealing with too many people who are not Americans? Those credit card and bank companies should employ Americans. Whats up with that? My husband and I are out of work, been making all payments with unemployment, no employers in my area are accepting resumes, nor are they seeking employees, they are all hurting, no jobs. Banks will not refinance, nor will this stimulous plan help those of us caught in the middle of loosing jobs last year. I own property up for sale but no one is buying nor is anyone even asking to look at it. Our Government appears to be taking over, and along with ours, it seems other countries as well. Our Holy War just turned into "Exactly" what the terrist wanted.. Financial USA upset. What can we do about it? I have been trying to avoid bankruptcy for over a year now. In bankruptcy they either take everything you own, or if you have a job (that can pay enough to cover your debts)you can qualify to pay back your debts in 5 years. Thats right only 5 years and only if you have a job. Your home is covered only if you don't owe more than $417,000. You can't have moe than $150,000 of equity in your home either. If this stimulous plan would help the unemployed and workers who had to take a cut in pay then we all might be o,k. Now not only did our assets lose value, but now the wages that we will receive will be cut in half. The only way to get back on track is to give us a bulk loan of all debts we have or forgive us of our debts. Those of you who have a job, consider your self lucky and stop making people feel like their dirt becasue they are unable to pay their bills. You may be in the same boat if you encounter a medical problem, no job - no insurance, Obama is not helping us. All talk no action toward the real problem. I am not asking for a free ride. I have been fortunate that credit card companies helped me out over the last couple of years. I want to pay them back, I just need the government to release funds so that many business owners can start employing again. Also you business owners that are bidding jobs too low, you are out of your mind! your putting off bankruptcy and making wages go down, "KILLING THE ECONOMY". Don't let them win! The next thing we'll hear is that people are working for minimum wage and we'll never be a home owner again. We are Americans!
Remember the real problem! There is NO work. Not that people just are not paying. Americans are hard workers. We care about others. Our Government Administration has us in the unknown. Come on Obama where is the work???

Richard

March 12, 2009 11:46 PM

A friend of mine called the Countrywide office about her mortgage and they said the guidelines for the Homeowner Affordability and Stability Plan would not be available until April 2009. Are they continuing with the same kind of irresponsible cheating and lying that got her into this mess? She paid her mortgage payments until she lost her job and medical bills for surgery started stacking up.

Richard

March 12, 2009 11:46 PM

A friend of mine called the Countrywide office about her mortgage and they said the guidelines for the Homeowner Affordability and Stability Plan would not be available until April 2009. Are they continuing with the same kind of irresponsible cheating and lying that got her into this mess? She paid her mortgage payments until she lost her job and medical bills for surgery started stacking up.

martha

July 29, 2009 1:21 PM

So I still don't know where to apply, can someone tell me where and when this is in effect?

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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