The Early Bird

Last week the Obama Administration unveiled two unprecedented mortgage plans. Their purpose was to put money back in people’s pockets and to prevent foreclosures. Since their reach is sweeping (they will inevitably have some impact on your neighborhood), I wanted to make sure you were aware of them.

• The first plan is called the “Home Affordable Refinance” (who names these things?!). This plan allows homeowners to refinance into lower rates that were previously not available to them because of declining home values. The loan can be as much as 105% of the home’s current value and—with strong credit—the rate would be the same as an 80% loan. The loan in question must be currently owned or guaranteed by Fannie Mae or Freddie Mac.  It doesn’t necessarily matter what type of loan it is, or who payments are mailed to, there are all sorts of ways a loan can end up with these entities.
• The second plan (“Home Affordable Modification”) creates a loan modification process for borrowers faced with foreclosure. This process will allow them to reduce their payment to a level equal to 31% of their monthly gross income. The thinking is that any foreclosure in a neighborhood reduces the values of all the other homes, hurting the majority of homeowners. Putting politics aside, stabilizing home prices will be a critical component of any economic recovery.

At this point many of the specifics have not been worked out, but April 6th is earliest someone can get approved for these programs. As I learn more, I’ll pass it on.