New Homeowner Affordability and Stability Plan Designed to Help Up to Nine Million Households and Protect Home Values

New Homeowner Affordability and Stability Plan Designed to Help Up to Nine Million Households and Protect Home Values

The U.S. Treasury Department recently released details of the new Homeowner Affordability and Stability Plan, which is designed to help between seven and nine million households avoid foreclosure and stay in their homes at affordable mortgage rates. The plan also is designed to reduce housing inventory, preserve home values from further decline, and protect communities across the country.

The primary provisions of the plan are as follows:

Low-Cost Refinancing

The refinancing provision will help eligible homeowners who took out a conforming loan owned or guaranteed by Fannie Mae or Freddie Mac, who haven’t missed a payment, but whose loans are larger than the value of their home. Eligible homeowners will be able to refinance at a lower interest rate, which could reduce their mortgage payments by thousands of dollars a year. Borrowers can’t owe more than 105 percent of their home’s current value on their first mortgage, the property must be owner-occupied, and the homeowner must have enough income to make payments on the refinanced loan. This program starts immediately and is scheduled to end June 2010.


Loan Modifications

The loan modification program is available for homeowner occupants of single-family homes who are delinquent on their loan or at risk of default and who have loans at or below $729,750. A loan modification, unlike a refinance, changes the terms of the existing loan without writing a new one and can include a reduction in the interest rate or principal, an extension of the term of the loan, or a combination.

The program provides incentives to lenders to participate and to borrowers to pay their monthly balances on time. Lenders must agree to reduce the loan payments to no more than 38 percent of the homeowner’s monthly income. After that, the U.S. Treasury Department and lender would split the cost of reducing the monthly payment to 31 percent of the homeowner’s monthly income. This program, which begins immediately and ends Dec. 31, 2012, allows homeowners to have their loan modified once.


Lower Mortgage Rates through Fannie Mae and Freddie Mac

Using funds already authorized by Congress in 2008, the Treasury Department is increasing its funding commitment—from $100 billion to $200 billion—to Fannie Mae and Freddie Mac. The Treasury Department also will increase the size of Fannie Mae’s and Freddie Mac’s retained mortgage portfolios by $50 billion to $900 billion. This program is designed to help lower interest rates, spur more borrowing, and help ensure the strength and security of the mortgage market.

The National Association of REALTORS® (NAR) praised the Homeowner Affordability and Stability Plan. NAR President Charles McMillan said, “Allowing eligible homeowners to refinance or modify their loans will help millions of families avoid foreclosure. This, in turn, will support the housing recovery by slowing the growth in inventory due to foreclosures. Lowering unsold inventory will help stabilize home prices and values…Housing stabilization must be the key component of any federal recovery plan. Helping families keep their homes is critical to this effort and for the health of our economy and communities across the country.” -Coldwell Banker Burnet Hot Wire