Preliminary details are out on Obama’s plan to reduce foreclosures and increase loan modifcations.
Full and final details should be out in the next 2 weeks.
Obama’s plan contains incentives for both lenders and home owners to agree to loan modifications and keep to those promises. Borrowers and lenders can receive up to $1,000 per year if borrowers keep their payments current and lenders agree to a loan modification.
Modifications would be paid to bring interest rate down so that payments are 38% of the borrower’s income. Additional reductions down to a 31% level could be made with matching lender and government funds. These lower interest rates would be in effect for five years.
Homeowners who are “under water” and whose debts exceed 55% of their income need to agree to HUD debt counseling.
One of my big concerns about any loan modifcation program is fairness to buyers who put cash into the property and now the property has dropped in value. Under Obama’s proposal, buyers who put 20% down but have seen their property values drop so they are “under water” will be allowed to refinance to a lower rate with Freddie Mac and Fannie Mae loans. In my opinion, this is a good feature of the proposal. The government if it helps anybody should help people that actually put their own money into the property.
In addition, the Obama plan allows bankruptcy courts to “cram down”mortgages.
Lenders are not happy about this.
Of course, the devil is always in the details. I wonder how many folks will be able to helped with this program. I suspect that so many borrowers are in homes well above their means that the 38% ratio may mean lenders need to reduce their rate to near zero to bring payments in line with this ratio. Will the lenders do this? Time will tell.
More can be learned at Inman News.
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