The Obama administration will be releasing details today on the stimulus plan Obama proposed on February 18th. It should be interesting to see how much (if at all) the plan differs from what was originally proposed.
I will be updating this post throughout the day as details become available.
Update 3/4/09 9:02am: CNNMoney.com has posted details to the Obama Stimulus Plan here.
Do I Qualify?
To participate in the loan modification plan, borrowers must:
- have obtained their mortgage before Jan. 1, 2009;
- have a primary mortgage of less than $729,500;
- live in the property;
- fully document their income by providing tax returns and pay stubs;
- sign a statement of financial hardship; and
- go for counseling if their total household debt – including auto loans, credit cards and alimony – totals more than 55% of their income.
The modification program will be in effect until the end of 2012, but loans can only be adjusted once.
Officials also unveiled more details on how servicers will modify the loans. First, they must reduce interest rates so that borrowers’ total house payments are not more than 38% of their monthly income. The government will then subsidize servicers dollar-for-dollar to lower that ratio to 31% – but the interest rate can’t go below 2%.
The new interest rate would then remain in place for five years, after which it will increase by 1 percentage point a year until it reaches either the original rate or the prevailing mortgage rate at the time of the modification, whichever is lower.
If rate reductions aren’t enough to get payments to 31% of income, a lender can extend the term up to 40 years, or shift part of the principal to the end of the loan at no interest. Servicers also have the option of reducing the loan’s balance.
Servicers will receive $1,000 for each loan modified, as well as additional annual bonuses if borrowers keep up with payments. Investors will receive one-time $1,500 incentive payments for restructuring qualifying loans that are not yet delinquent. Finally, borrowers who keep up with their new payments will receive up to $1,000 a year in principal reduction, for up to five years.
he program also includes a new provision to eliminate borrowers’ second mortgages. Investors in those mortgages, who at times have blocked modifications because they don’t benefit from the adjustments, will receive incentives to eliminate those claims. Servicers that get second-mortgage holders to participate will receive an additional $250.
Update 3/5 5:38am – The Arizona Daily Star has an article in today’s paper entitled “Mortgage plan may aid 9M; many Arizonans are left out ” that I think is a crucial read, brief excerpt below:
President Obama’s new mortgage-relief plan, launched Wednesday, aims to help up to 9 million borrowers qualify for more affordable mortgages and stay in their homes.
But it leaves out tens of thousands of borrowers — many of them Arizonans — in the most-battered housing markets. They won’t qualify because their homes have lost too much value.
The program detailed Wednesday offers refinanced mortgages or modified loans with lower monthly payments. Yet its refinancing plan is limited to borrowers who owe up to 5 percent more than their home’s current value. Loan modifications, supported by $75 billion in federal funding, are unlikely for severely “underwater” borrowers.
In the California cities of Stockton, Modesto and Merced, more than one out of every 10 homeowners with a mortgage won’t qualify for any help because they owe more than 50 percent more than their house’s current value, according to data from Zillow.com, a real estate Web site.
Michael Krotchie
