Obama’s Plan For Saving Homes

We all saw last week the consequences of an under-detailed White House plan to help our economy. Wall Street made it apparent with the 300 point hit to the stock market shortly thereafter, that it would much prefer the White House dish out some details when unveiling a plan. Well, at least the White House got that message loud and clear, and Wednesday morning in Phoenix, President Obama outlined in detail, a plan called the Homeowner Affordability and Stability Plan (HASP).

So what kind of details did he outline? Far more than I wish to write about but let me give you the gist:
Essentially, the $75 billion plan aims to allow four million to five million homeowners to refinance mortgages guaranteed by the government-controlled Fannie Mae and Freddie Mac. This plan does not target speculators or investors; only homeowners.

Though already opposed by many financial institutions and lenders, the plan seeks to allow judges to modify mortgages in bankruptcy court for homeowners facing specific dire circumstances.

In addition to the $75 billion, the Treasury Department would buy $200 billion in preferred shares in Fannie and Freddie (This money would come from the 2008 Housing and Economic Recovery Act and NOT from the $700 billion financial bailout). According to Treasury Secretary Timothy Geithner, “The increased funding will provide forward-looking confidence in the mortgage market and enable Fannie Mae and Freddie Mac to carry out ambition efforts to ensure mortgage affordability for responsible homeowners”.

In the past, Freddie and Fannie were restricted from guaranteeing refinancing on mortgages valued at more than 80% of the home’s worth. The plan would remove that restriction on mortgages that they already own or guarantee. The President said, “This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to the taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in default and foreclosures”.

Incentives for the lenders to lower rates include $500 awarded to service providers and $1500 to mortgage investors if at-risk loans are modified before borrowers fall behind on their payments.

In addition, the government is enticing homeowners with principal reductions of $1000 a year for five years IF they stay current on their payments.

Also, if a lender modifies a loan so that the buyers were spending 38% of their monthly income on mortgage payments, the government would provide matching funds to lower that payment further to 31% of their monthly income.

“…all of us are paying a price for this home mortgage crisis,” Obama said Wednesday morning, “and all of us will pay an even steeper price if we allow this crisis to deepen.” Just as with the $700 billion stimulus plan the Obama administration passed last week, this is going to take at least a couple months to get off the ground and it will require the efforts of many to ensure it reaches its full potential as a plan. And there are those of course, who are skeptical. Healy writes that “Economist and lobbyists offered support for the planks laid out by Mr. Obama, but said they might not go far enough to addressing the problems of millions of homeowners who are “underwater” and owe more than their houses are now worth. And they warned that renegotiating mortgages could be extraordinarily complex, and that even Mr. Obama’s plan might not make enough of a difference as the economy sinks farther”. Well certainly this might not make enough of a difference. In fact it is likely that it won’t be enough. After-all, this is not your run of the mill dip in the economy or real estate market. This, for lack of a better and less-used word, is a crisis.

But this plan was formulated with the guidance of the banking industry, consumer groups, and academics, and it seems that the Obama administration is off to a solid start addressing our nation’s major problems head on and in an effective manner. As with the stimulus bill, this is something that needs to get going now, as opposed to arguing about how effective it will be and waiting several months to get it passed and I am waiting with bated breath to hear what criticisms the Republicans are going to have for the plan. And although this plan will certainly not solve our ailing real estate economy, it may be able to slightly lessen the pain for millions of Americans. “If you lose your job even if they cut your [mortgage] payments by $200 or $300, it’s not going to make things much better,” said Christian Menegatti, lead analyst at RGE Monitor. “But it’s a first step”. And at this point, a first step feels like a huge victory.

By Andrew Brentan

27 thoughts on “Obama’s Plan For Saving Homes”

  1. loan modification guru

    “…all of us are paying a price for this home mortgage crisis,” Obama said Wednesday morning, “and all of us will pay an even steeper price if we allow this crisis to deepen.” – this is a nice spin to it…

  2. loan modification brother

    Incentives for the lenders to lower rates include $500 awarded to service providers and $1500 to mortgage investors if at-risk loans are modified before borrowers fall behind on their payments. —— this should be the priority

  3. Paul - Las Vegas Short Sales

    Interesting plan but what about the short sale mess? It seems to be ignored and more often then not… the short sales taken on by specialists are for homeowners that really need out due to loss of job, relocation, etc.. The only thing stopping us from helping to clear this inventory and keeping these homes from going to foreclosure are the lenders themselves.

    What’s the incentive to lenders for getting on the ball when it comes to these?

    Because these certainly go to foreclosure and will sell for less at a higher cost…

  4. I’m a broker in Canada with several clients that do cross-border US real estate and business investing and I can tell you that I have several clients waiting with bated breathe to see how soon we can see results from the stimulus. General time horizon expectation is around 12 months though.

  5. All of this government intervention will just prolong the pain U.S. tax payers are feeling. I hope this gets sorted out for our neighbors to the south soon. But I feel things are going to get much worse before they get better. I hope i’m wrong.

    Kamloops Real Estate Blog’s last blog post..Neighbourhood Profile: North Kamloops, B.C.

  6. well at least he’s doing somthing, i like obama much more than bush. i think that he wants to help more to. he’s trying his best.

    good on you president

  7. I still wanted to see more about engaging the “buyers. That is, much of what I see fails to address incentives those who are still in a relatively sound financial state – but who are scared!. Stemming foreclosures may keep inventory from rising dramatically, but it doesn’t bring buyers out of the woodwork to help control our massive inventory. Just an example, why not amend the first time home buyer credit to include anyone, and raise the amount considerably ($20-$30K).

    Thoughts?

  8. Seattle Washington Real Estate

    Obama’s plan is good because it does not kick the can down the road. Cheers president.

  9. Albany Real Estate

    I think it all comes down to jobs. If the American public is uncertain whether they will be employed in 6 months, they will be unlikely to buy homes, cars, etc. regadless of whatever government incentive ares out there.

    Albany Real Estate’s last blog post..For Sale By Owner Albany Web Traffic

  10. Oh great, another Obama orgy-fest on this board. I’m beginning to understand that Obama supporters, for the most part, are just not that bright. A lot of emotions, lots of “hope” and enthusiasm, but very little brain power and critial thinking going on.

    You think Bush was bad (not going to argue that), just wait until this moron, who has never run a lemonade stand, runs our economy into the ground. I guess you’ll just blame Bush, how silly of me.

    You can’t spend your way out of a recession, and anyone who thinks you can is the dumbest person on the planet. Oh wait, Obama thinks you can spend your way out of a recession. Case closed!

  11. Latest Technology News

    T-Dogg, I agree with you. There is no way to spend you way out of this problem. Over-inflated property, whether it be homes or whatever, are the problem. Until prices more accurately reflect the true value of property, we will be in for a rough ride.

    We’ve just started and lets see what obama can do. Don’t start judging.

  12. This stimulus plan will never put a dent in our problems. What will happen is homes prices will drop correcting the market. The housing market will then turn the corner. The the Obama plan will get all this credit for saving us when in truth it probably helped very little.

    T-Dogg, I agree with you. There is no way to spend you way out of this problem. Over-inflated property, whether it be homes or whatever, are the problem. Until prices more accurately reflect the true value of property, we will be in for a rough ride.

  13. So yeah, the plan is good, but will it work? But as some of the other posters here have said, property values are never accurate. Personally it amazes me how somebody who doesn’t really have a nice income spends 100-200k extra for a flat or house when he or she can very well use that money to start their own business and practically helping themselves to a nice and better future.

  14. @T-Dogg – there’s no way you can spend your way out of a problem but in this particular context you can spend your way into incentivize those who are on the fence to buy. When you can move this contingent, inventory goes down and we see some semblance of stability. Again, just my opinion.

  15. It’s only one part of the equation. The “Bad Assets” fall into 3 categories: 1) Those that are irretriveable- people who’ve lost jobs , 2. Those who’s rates increased to where they now can’t afford, and 3. Home prices that have fallen so far, that even though payments are being made, a rational borrower may still walk away.
    The Housing Relief plan is aimed squarely at the 2nd group,and may cover part of the 3rd. But a big part is the threat that bankruptcy judges will be able to re-write the mortgage. Stil to be passed by congress, as far as I can see, THIS AND ONLY THIS, will force more banks to accept Short Sale propositions.
    If the bank thinks they will come out ahead, even in bankruptcy, then that is where they will go. I don’t show Short Sale prospects- under the current rules, it is a complete waste of time.

  16. Pingback: San Diego Real Estate and Home Decorating Resource - Home Solutions San Diego Blog » Blog Archive » Will Obama’s Stimulus Plan Work?

  17. It seems like the Obama adminstration has some good strategies to turn our economy around, hopefully sooner than later. Most do not understand these changes will take some time before we begin to reap the rewards and see some positive results. The real estate industry drives a good part of our economy and must recover in order for other industries to begin to bounce back.

  18. all of us are paying a price for this home mortgage crisis,” Obama said Wednesday morning, “and all of us will pay an even steeper price if we allow this crisis to deepen.” – this is a nice spin to it

  19. As Monty says, it the UK people just accept what politicians say, it is very frustrating. Its good to see Americans get behind Obama, i just hope he delivers for you.

  20. The weatherization part of the new stimulus bill is very nice for people in the industry. I also think it will really spark the construction industry. I just wonder how our kids, and potentially their kids and grand kids will have to pay for it all.

  21. I agree with EnegyHoarder, that $6.2 Billion for weatherization should be professionally reviewed by a home energy auiditor. Homes should have an energy audit to find out what needs to be upgraded and fixed rather than just throwing money at it.
    .-= Curtis´s last blog ..Home Energy Audits =-.

  22. President Obama is working hard to promote the finance solutions in my opinion. I have been working personally in Stock Markets around the Globe. If you ask about the stock markets, the stock market is one of the most important source for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market.

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