The Obama Administration’s program to rescue distressed home owners got off the ground this week. The program was announced on Feb. 18, but it took several weeks to put the bureaucracy in place.
Six of the nation’s largest banks signed up to participate, the Treasury Department announced Wednesday. They are JPMorgan Chase, Wells Fargo, Citigroup, GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing.
Treasury says it is allocating $50 billion to the program. The Department of Housing and Urban Development will provide the rest.
The plan calls for loan servicers to reduce interest rates so a family’s monthly mortgage obligation is no more than 38 percent of its pre-tax income. Loan servicers also can reduce loan balances. After the loans are modified, the government then provides enough money to reduce payments to 31 percent of income.
Participating servicers get $1,000 a year for each modification and another $1,000 a year for three years if the borrower remains current. Servicers get an extra $500 if they do the modifications before the borrower falls behind in his payments—and the borrower gets $1,500. Also, homeowners get $1,000 a year for five years if they remain current on their payments. The money must be used to reduce their principal balances.
Source: CNN, Tami Luhby (04/16/2009)
Not everyone was a winner under the program to help troubled homeowners announced Wednesday by the Obama administration.
The refinancing plan does nothing for people whose mortgages have dropped substantially in value because it’s limited to borrowers who owe no more than 5 percent more than their home’s current value. Borrowers who are severely underwater don’t qualify.
It also won’t help borrowers whose main breadwinner has lost a job or those who are drowning in other debts on top of their mortgages.
The ineligible borrowers are concentrated in California, Florida, Nevada and Arizona, but are also in the Midwest, particularly in Detroit.
“This is not going to save every person’s home,” said Robert Gibbs, the White House press secretary. “The plan is not intended to … augment somebody’s loan for a house that they couldn’t afford under any economic situation, good or bad.”
Source: The Associated Press, Alan Zibel
Republican presidential candidate John McCain proposed during Tuesday night’s debate using $300 billion of the $700 billion of the financial bailout money to buy up bad home mortgages, instead of rescuing the financial markets.
“I would order the secretary of the Treasury to immediately buy up the bad home-loan mortgages in America and renegotiate at the new value of those homes — at the diminished values of those homes — and let people be able to make those payments and stay in their homes,” he said.
Democratic nominee Barack Obama last month sounded a similar theme, proposing that the government consider taking such a step.
But McCain’s approach was far more unequivocal.
A background paper provided by the McCain campaign said the plan “could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government’s conservatorship of Fannie Mae and Freddie Mac.”
It was unclear, either from McCain’s remarks or from the backup materials provided by the campaign, how such a massive plan would be administered. Though McCain, a budget hawk and critic of rising federal spending, did concede one point. “Is it expensive? Yes,” he said.
Source: The Associated Press, Jim Kuhnhenn
Foreclosure Plan Will Be Greeted With Questions
Treasury Secretary Henry Paulson will unveil a plan on Thursday to forestall foreclosures and ease the housing recession.
The release of plan’s details will coincide with the release of data from the Mortgage Bankers Association that show that homes in foreclosure hit record levels in April through June, and that nearly 17 percent of subprime borrowers missed at least one payment in the first quarter of the year. An additional 2 million home owners will face their first interest-rate reset by the end of 2008.
“This is the most serious housing recession since the Great Depression,” says Mark Zandi, chief economist for Moody’s Economy.com. Zandi predicts that home prices, on average, will fall 7 percent more through next year.
Paulson says he wants state and local governments to be allowed to issue tax-exempt bonds to “temporarily” raise money to help some struggling subprime borrowers refinance.
Questions remain about how many investors, who bought bonds backed by these mortgages and are spread out around the globe, will agree to change the terms of the loans.
Source: USA Today, Noelle Knox (12/4/2007)