obama stimulus plan

Obama Bailout Guidelines – Do You Qualify?

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.

obama stimulus plan

Homeowner Affordability and Stability Plan Details

This article on Obama’s new stimulus plan was just posted on CNNMoney.com and I think it’s safe to say it should be recommended reading for everyone.

Here are the important excerpts (edited for brevity):

Falling home prices

The administration, which is marketing its plan as help for “responsible homeowners,” estimates it can help up to 5 million people.

The plan would help borrowers who owe more than 80% of their home’s value to refinance and reduce their monthly payments. Lenders generally won’t refinance people who have less than 20% equity in their homes.

But only those who are current on their payments and whose loans are held or guaranteed by Fannie Mae and Freddie Mac are eligible. Also, the new mortgage, including refinancing costs, can’t exceed 105% of the current market value of the property, excluding many of the hardest hit. So if your mortgage is $210,000, your property can’t be worth less than $200,000.

The program, which begins March 4, allows borrowers to refinance into 15-year or 30-year fixed-rate mortgages at the current market rate, which hovers around 5%. This could benefit those whose mortgages carry higher rates or those in adjustable-rate or interest-only loans, groups of people who could see big rate spikes in the future. The plan, however, will not reduce the loan balance.

For instance, consider a family that took out a $207,000 mortgage at 6.5% on a home originally worth $260,000, but now valued at $221,000. If they refinance to a rate of 5.16%, they could reduce their annual payments by more than $2,300.

Homeowner stability initiative

The administration is also creating a $75 billion initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower’s income.

It estimates this program, dubbed the Homeowner Stability Initiative, would help up to 4 million people. It also argues that the measure helps stabilize home prices for all in the neighborhood, maintaining as much as $6,000 in value.

The effort would help borrowers — both those current and delinquent — who live in their homes lower their monthly payments for five years. The servicer would reduce interest rates so that the monthly obligation is no more than 38% of a borrower’s income and then the government would kick in money to bring payments down to 31% of the homeowner’s income.

Servicers can also reduce the loan balance to achieve these affordability levels. The government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

Obama’s plan also addresses critics who say that some homeowners need extra help because they are carrying so much debt on top of their mortgages. Those with total debt — including credit cards and auto loans — equal to 55% of their monthly income must enter a debt counseling program to qualify for a modification.

In addition to providing incentives to servicers and investors, the administration will also reduce borrowers’ loan balances by up to $1,000 a year for five years if they keep up with payments.

To entice servicers to modify mortgages in the wake of continuing home price declines, the administration and the Federal Deposit Insurance Corp. have developed a $10 billion insurance fund that will pay mortgage holders additional funds based on declines in a home price index.

Attached are copies of three documents released by the White House regarding the new “foreclosure plan” announced today.

• The first document is a detailed summary of the provisions outlined by the administration today.
• The second document describes how the plan will help 3 different “families” facing foreclosure.
• The third document is a question and answer series.

This information also is available on REALTOR.org

The one group who does not benefit at all from this stimulus plan are those homeowners who have investment properties, vacation homes, or other-than-primary-residence properties that would otherwise qualify.

So what does this mean? It sounds like substantial help is on the way for millions of homeowners. Politics asides this should definitely provide relief to many homeowners who would otherwise face foreclosure or bankruptcy.

I am curious to see how many lenders/servicers/banks find these programs attractive enough to actually perform loan modifications and I suppose it will become clear during the coming weeks as details of the program are more fully understood.

The Hope For Homeowners Initiative (H4H) really fell flat on it’s face and was another example of a plan that sounded good in theory but that never panned out.

Let’s hope these ideas don’t have the same fate.

obama stimulus plan

Obama’s Stimulus Plan – How Will it Affect Homebuyers?

With Obama expected to sign the $787 billion stimulus plan into law tomorrow the country will hopefully be put on the path towards economic recovery. As a homebuyer the biggest difference has to do with the first-time homebuyer tax credit.

Existing First-Time Homebuyer Tax Credit

The existing first-time homebuyer tax credit (Part of The Housing and Economic Recovery Act of 2008) authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009.

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

But this credit isn’t really a credit, it’s a 0% loan that must be repaid over 15 years.

New First-Time Homebuyer Tax Credit under Obama’s Stimulus Plan

The tax credit under the stimulus plan would give buyers 10 percent of the price of a primary residence bought within one year, up to $15,000 $8,000, and is intended to stabilize plummeting home prices. The major difference is that this credit would NOT be a loan that would have to be paid back. It is a no-strings attached tax credit. However, home-buyers would have to repay the credit if they sold their homes within three years.

And here are your Tucson MLS 24-Hour Change Statistics

New Listings	30
Back on Market	6
Price Increases	7
Price Reductions	55
Contingents	10
Pendings	9
Solds	11
Expireds	58
Inactives	14