EDITORS NOTE: Steve Combs is mortgage specialist who, at the request of TheBAYNET.com, broke down the hundreds of documents included in the president’s new Homeowner Affordability and Stability Plan for TBN readers. Combs may be reached via his web site: www.Steve-Combs.com.
On March 4, the Department of Treasury released new details of the Homeowner Affordability and Stability Plan, announced by President Obama on February 18. Designed to help between seven to nine million families avoid foreclosure, the plan has three main components, two of which directly address struggling homeowners.
The Home Affordable Refinance Program is aimed at homeowners who have less than 20 percent equity in their home or owe more than their home is worth. The Home Affordable Modification Program addresses borrowers at risk of losing their home because their payments are too high.
It’s important to note that only loans insured or owned by Fannie Mae and Freddie Mac with unpaid principal balances of up to $729,750 for a single principle residence will benefit from this program.
The final part of the President’s plan creates an additional $100 billion in support for government-sponsored enterprises Fannie Mae and Freddie Mac, to help increase lending and reduce mortgage interest rates. These insurance payments, linked to declines in the home price index, would compensate lenders if home price declines are higher than expected.
Opponents of the plan suggest that this is simply an extension of the Hope For Homeowners plan of 2008, which was ineffective because of the voluntary nature of the program. The new plan does not address homeowners with negative equity or borrowers with sub-prime, Alt-A, and jumbo mortgages, borrowers most vulnerable to foreclosure. Opponents also wonder how an increase in risk for GSEs won’t lead to increases in fee rates – not to mention how mortgage insurance and second mortgages fit into the process. Others suggest that the government, since new mortgage terms will stay in place for five years, is in essence offering a five-year ARM that will cause a similar market “melt-down” in the future. Finally, industry opponents of the program wonder what role, if any, mortgage professionals will have in this execution of the plan if investors don’t participate in or purchase loans originated with DU Refi Plus.
Proponents of the