The Homeowner Affordability and Stability Plan

Earlier today, 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 impact of foreclosures on families and communities.
The plan contains three main components, and only applies to primary residences, and the loans can't exceed Freddie Mac/Fannie Mae conforming loan limits.

The first component is directed toward homeowners who still have equity in their homes, but not the 20 percent equity needed to refinance. Under the plan,they will be allowed to refinance, even without 20 percent equity. About 5 million homeowners will be helped by this portion of the program.

The second component, known as the Homeowner Stability Initiative, is 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. Homeowners do not have to be delinquent to participate.
Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default....more details are coming in early March, but clear and consistent guidelines will be in place for any financial institutions that receive government assistance. It is estimated that between 3 and 4 million homeowners will benefit from this component of the plan.

The third component of The Homeowner Affordability and Stability Plan is 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 of them to $200 billion each. The Treasury Dept. also will continue to purchase Fannie Mae and Freddie Mac mortgage-backed 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 and work with them to support state housing, such as CalHFA. Funding for this will not come from TARP money but from the Housing and Economic Recovery Act.
While some of the details still are being developed, such as the modification guidelines, programs and funding are already allocated for The Homeowner Affordability and Stability Plan and will need little legislative approval for programs under the plan.

I’ll keep you updated as more details and information become available.