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February 2009 provided a history making plan passed by President Barack Obama.
This plan is to help stop those who are potentially facing foreclosure. The name
of the act was the Homeowner Stability Initiative (HSI). This plan was
designed to help millions of homeowners avoid foreclosure.
There are three (3) aspects to this plan that are designed to help.
1. Refinance
Because of the decline in home values, millions of people now owe more on their
home than it is worth. Most banks are not willing to refinance these homes. A standard
mortgage loan allows a maximum refinance amount of 80% of the home's value. It is
simple to see using these numbers that those who owe more than their home is worth
would have difficultly refinancing.
If you are one of the millions of homeowners who have a mortgage with Freddie Mac
or Fannie Mae guarantees you may be eligible to refinance your home at a lower interest
rate. For most, this will mean lower monthly payments and an increased
ability to pay their mortgage.
2. Loan Modifications
This plan helps reduce monthly mortgage payments for homeowners. All homeowners
are aware of the requirement of Debt to Income Ratio that is calculated when they
mortgage their home. Standard Debt to Income ratios are approximately 1/3 of the
homeowners income. This aspect of the plan will offer reduced mortgage payments that
are equivalent to 31% of income.
The plan is for the interest rate reduction to assist the homeowner for a period
of five years. If a borrower stays current on their mortgage, the Treasury
Department will supplement the mortgage payments at a rate of $1,000 annually. This will
be used to reduce the principal amount of the loan.
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3. Funding to Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac will be provided additional funding through the purchase
of $200 billion in preferred shares. This change will allow more people to receive loans
and loan guarantees for their mortgages. This portion of the bill will be paid for from
existing funds versus from new funds.
© iStockphoto.com - jorgeantonio
Homeowner Stability Initiative Offers Renters Relief
Many renters have been victims of the sub-prime
mortgage crisis resulting in sudden relocation. Many neighborhoods are becoming vacant
and distressed because of this. Part of the program will fund a Neighborhood Rehabilitation
Fund that prevent neighborhoods with high vacancies due to foreclosures avoid becoming
distressed.
HSI's Advantages for Banks
Banks and mortgage lenders will be able to take advantage of several benefits from this
program should they elect to participate. These incentives include:
- Subsidizing of losses as a result of modifications
- Lenders will receive up to $1500 for each loan they modify before the borrower falls behind
- Loan Servicing companies will receive up to $500 for each modification prior to the borrower falling behind
- Loan Servicing Companies will receive $1000 for each successful loan modification and are eligible for an additional $1,000 for three (3) years if the loan stays viable
These incentives will be paid for by the exiting Troubled
Asset Recovery Program funds.
Summary
Millions of homeowners may have received a new lease on their mortgage due to the
homeowner stability initiative (HSI). This will certainly help them stay in their homes if
they are potentially facing foreclosure.
(Source: Treasury Department, Homeowner
Affordability and Stability Plan, February 18, 2009)
See also: HOPE NOW,
government refinancing
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