Obama Announces Mortgage Relief Plan

President Obama recently provided details of his mortgage relief plan we have been hearing so much about.  Much of his plan would not require approval by Congress, but some of the parts would.  The goals of the mortgage relief plan are obvious:  to reduce foreclosures and allow some homeowners (estimated at 7-9 million) to stay in their houses which will help stop falling real estate prices and stabalize the real estate market. Key elements of the plan include helping homeowners whose property has decreased in value by at least 15 percent get lower payments from their lenders, make it easier to modify existing home loans, keep interest rates low to make payments more affordable, to help homeowners before they are in default, and not to give help to speculators or prospectors. The plan will help keep housing affordable to homeowners who have not defaulted on their loans.  Under current rules, homeowners with less than 20% equity can not refinance and take advantage of historically low interest rates, even though the homeowner is current on payments.  These homeowners have seen reduction in values because of the nature of the real estate market and through no fault of their own.  The Obama plan will allow as many as 4 to 5 million homeowners who took out conforming loans insured by Freddie Mac or Fannie Mae to refinance.  The plan would allow these homeowners to refinance when current conditions typically wouldn't and realize significant savings on their mortgage payments.' Another aspect of the plan would help struggling responsible homeowners whose mortgage payments now make up 40-50% of their monthly income because of the economic recession (job loss or reduction of pay).  These homeowners are unable to sell because of the falling values.  The plan would help those homeowners who commit to staying in their houses and making reasonably monthly mortgage payments.  Specifically, the plan would subsidize mortgage companies to allow the homeowners that meet the qualifications to refinance into lower payments.  This is the complicated part of the plan and there are a lot of incentives offered to lenders.  There are also incentives offered to homeowners who make their payments under the program in the form of mortgage principal reduction of up to $1,000 per year for 5 years.  The plan would also provide an "insurance" component to entice lenders to modify loans.  The Treasury Department is to develop uniform guidance for loan modifications across the industry.  Another aspect of the plan is that the government will provide additional funding to Freddie Mac and Fannie Mae (with funds already approved by Congress in 2008) to bolster the strength and security of the mortgage market. Another aspect of the plan is to modify the bankruptcy laws to allow bankruptcy judges to modify residential mortgages in chapter 13 bankruptcy cases for those homeowners who have exhausted other alternatives.  This part of the plan would require Congressional approval as Congress constitutionally is the only branch of government that can pass laws relating to bankruptcy. President Obama recently provided details of his mortgage relief plan we have been hearing so much about.  Much of his plan would not require approval by Congress, but some of the parts would.  The goals of the mortgage relief plan are obvious:  to reduce foreclosures and allow some homeowners (estimated at 7-9 million) to stay in their houses which will help stop falling real estate prices and stabalize the real estate market. Key elements of the plan include helping homeowners whose property has decreased in value by at least 15 percent get lower payments from their lenders, make it easier to modify existing home loans, keep interest rates low to make payments more affordable, to help homeowners before they are in default, and not to give help to speculators or prospectors. The plan will help keep housing affordable to homeowners who have not defaulted on their loans.  Under current rules, homeowners with less than 20% equity can not refinance and take advantage of historically low interest rates, even though the homeowner is current on payments.  These homeowners have seen reduction in values because of the nature of the real estate market and through no fault of their own.  The Obama plan will allow as many as 4 to 5 million homeowners who took out conforming loans insured by Freddie Mac or Fannie Mae to refinance.  The plan would allow these homeowners to refinance when current conditions typically wouldn't and realize significant savings on their mortgage payments.' Another aspect of the plan would help struggling responsible homeowners whose mortgage payments now make up 40-50% of their monthly income because of the economic recession (job loss or reduction of pay).  These homeowners are unable to sell because of the falling values.  The plan would help those homeowners who commit to staying in their houses and making reasonably monthly mortgage payments.  Specifically, the plan would subsidize mortgage companies to allow the homeowners that meet the qualifications to refinance into lower payments.  This is the complicated part of the plan and there are a lot of incentives offered to lenders.  There are also incentives offered to homeowners who make their payments under the program in the form of mortgage principal reduction of up to $1,000 per year for 5 years.  The plan would also provide an "insurance" component to entice lenders to modify loans.  The Treasury Department is to develop uniform guidance for loan modifications across the industry.  Another aspect of the plan is that the government will provide additional funding to Freddie Mac and Fannie Mae (with funds already approved by Congress in 2008) to bolster the strength and security of the mortgage market. Another aspect of the plan is to modify the bankruptcy laws to allow bankruptcy judges to modify residential mortgages in chapter 13 bankruptcy cases for those homeowners who have exhausted other alternatives.  This part of the plan would require Congressional approval as Congress constitutionally is the only branch of government that can pass laws relating to bankruptcy.