Important Facts About the Housing Stimulus Plan
The collapse of the housing industry was a devastating blow the nation’s overall economic recession. The road to national economic recovery must include the restoration of the housing market. This will not be an easy task. In January of this year, construction of new homes and applications for future projects reached record lows, as building activity declined everywhere in the country.
Economists are hoping that the path to recovery for the housing industry will start with the implementation of the government’s proposed bailout plan. The Obama administration has set aside $74 billion for the Homeowner Affordability and Stability Plan, which is aimed at curtailing foreclosures in order to stop the housing industry’s downward slide. The Plan is broken up into 2 main components, the first of which is the Home Affordable Modification Plan, which provides a set of incentives to encourage lenders to lower monthly mortgage payments so that homeowners are better able to afford their homes and can thus avoid defaulting on their loans. The second part of the Plan is known as the Home Affordable Refinance Plan, which involves helping owners who are “underwater” (i.e. owe more than their house is worth) refinance. Underwater mortgages are typically impossible to refinance, but the housing bailout plan will try to do just that for 4 to 5 million families throughout the country.
Refinancing
Mortgage rates have reached near-record lows in the past few months. This could result in more manageable payments for those homeowners who are trapped by the falling price of their homes. Despite being current on their monthly payments, many homeowners still find themselves underwater. Up until now, people whose mortgages were backed by Fannie Mae or Freddie Mac were required to have a minimum level of equity in their homes before they could refinance. With the Obama administration’s housing plan, however, the option to refinance is open to people who owe up to 105% of their home’s current value.
The administration has made a point of the fact that homeowners don’t have to be delinquent on their mortgage payments to qualify for the new refinance plan. White House analysts estimate that about 5 million homeowners with mortgages backed by Fannie Mae and Freddie Mac will be eligible. If you are wondering whether you fall in this eligible category, contact a mortgage company familiar with these programs to determine if you are eligible to refinance and lower your payments.
Incentives for Lenders and Borrowers
As part of the stimulus plan, loan servicing companies will be paid for every eligible loan modification an up-front fee of $1000. So-called “pay-for-success” fees will also be awarded, provided borrowers maintain do not become delinquent on their loans. These pay-for-success fees go up to $1000 a year for up to three years. In addition, the housing stimulus offers $500 to lenders and $1,500 to loan holders if they modify the loan before borrowers default on their payments to encourage lenders to help out borrowers who are doing their best to pay on time, .
For borrowers, making on-time payments will result in annual balance-reduction payments that go towards the reduction of the loan’s total principal amount. As long as homeowners maintain a current status on their mortgages, they can receive up to $1000 per year for five years.
The Federal Insurance Fund
The Obama administration and the Federal Deposit Insurance Corporation have planed an insurance fund that would reward mortgage holders for modified loans when there is a decline in the home price index. This fund is meant to promote loan modifications that lower mortgage payments and enable homeowners to stay current on their loan.
Institute Consistent Loan Modification Guidelines
Inconsistent and unethical loan modification practices have contributed to some of the devastation experienced in the housing industry, as borrowers struggling to make their payments were fooled by mortgage modification scams where con artists took their money and never did anything to improve their situation. In order to prevent future financial malpractices, the U.S. Treasury is set to develop uniform loan modification guidelines that will apply throughout the entire mortgage industry. All financial institutions receiving bailout money will be required to abide by these guidelines. The White House will partner with federal and state regulators to ensure that these standardized practices are implemented. The guidelines will apply to all loans backed and/or guaranteed by federal government institutions as well as by Fannie Mae and Freddie Mac.