Most of the details of President Barack Obama's foreclosure program have not yet been released. White House officials are still finalizing the details, but some key features were already released to the public.
Obama's plan, called Homeowner Affordability and Stability Plan, aims to save up to 9 million homeowners from foreclosure. It has two refinancing initiatives. One is for borrowers whose equity is less than one-fifth of the value of their home or who owe much more than the current value of their home. The other is for homeowners in danger of foreclosure. Both aim to reduce monthly amortizations to affordable amounts.
Only homeowners whose mortgage loans were issued or are being serviced by either Fannie Mae or Freddie Mac are qualified for the refinancing initiatives. Their mortgage balance must not be more than 5 percent higher than the current value of their home. Homeowners who are current with their loan payments but who are worried they might go into foreclosure are also qualified.
Homeowners can change their loan terms to 15 years or 30 years on fixed rates based on current mortgage rates. Freddie Mac's data showed 5.16 percent as the average rate for the 30-year mortgage in February and 4.81 percent as the average rate for the 15-year mortgage.
The program will give incentives to lenders to prompt them to save from foreclosure as many borrowers as they can. Lenders will be encouraged to reduce monthly payments to as low as 31 percent of the borrower's gross income. Reduced monthly payments could be achieved by lowering the mortgage rate, extending the loan term or reducing the principal balance.
Homeowners will also be rewarded if they keep their mortgage accounts current. They will be given an incentive of up to $1,000 per year for five years. This amount will be applied to reduce the borrower's principal balance.
For homeowners who are heavily burdened with lots of debts, the program also prepared a way out for them. If a homeowner spends 55 percent of his monthly income to pay various debts, the program requires the homeowner to attend a debt counseling program so that he can be considered for loan refinancing.
The roll-out of the refinancing initiatives will start on March 4. While waiting, homeowners are advised to prepare their mortgage documents, including payslips and income tax returns. It is not yet clear if the foreclosure initiatives require certain credit scores, but early news releases said borrowers must be credit worthy.fsbo
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