Closing the gap on the number of foreclosures in this country and allowing home owners to refinance their homes, even though they may owe more than their home is worth, is what the government plans to implement in the coming weeks. Called the Homeowner Affordability and Stability Plan, President Obama announced this past Wednesday that the plan “will give millions of families resigned to financial ruin a chance to rebuild, prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help shore up prices for everyone.”
The key components of the plan is a $75 billion dollar injection into Government Sponsored Enterprises (GSEs) refinancing for up to 4 to 5 million ‘responsible’ homeowners with GSE loans to make their mortgages more affordable. The plan also offers to reach up to 3 to 4 million ‘at-risk’ homeowners as well as offering low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac. The housing plan is part of the larger effort by the new administration to address the ailing economy. But don’t think everyone is going to be happy about this new plan, because not everyone is going to benefit.
The new refinance provision outlined by the President is limited to those borrowers whose loans are owned by government-backed mortgage companies Fannie Mae and Freddie Mac. That leaves people with homes financed under jumbo loans, a mortgage loan amount above the industry standard definition of conventional conforming loan limits, outside the boundaries of any qualified help. Don’t count on government help if you took advantage of any sort of buyer’s assistance program or city sponsored first time buyer program either. Likely, that program did not fall under the guidelines of Fannie Mae or Freddie Mac.
Unfortunately, the inflationary housing market of yesteryears increased home values beyond conventional loan limits in many metropolitan markets. With loosely guided lending requirements and an eagerness to jump into the fray, many borrowers looking to get into the real estate market received jumbo style loans or took advantage of first time or city sponsored buyer programs. Attractive rates, equity lines and even down payment assistance was used to help cover most of the down payment requirements was standard in those days, where sometimes the purchase of a $750 thousand dollar condo required only 5% down from the borrower…and sometimes without the need to submit full loan documentation for that jumbo loan.
But for the most part, however, the key components of the plan may help to jump start the hobbling real estate markets. Explaining the package in further detail Obama said of the new package that “this will allow millions of families stuck with loans at a higher rate to refinance…and the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.” Even those who do not benefit directly could still benefit indirectly if the new plan boosts the housing market and lifts the economy.