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Homeowner Affordability and Stability Plan
ABA Staff Contact: Bob Davis, (202) 663-5588, rdavis@aba.com
The Obama administration has launched a broad mortgage modification and refinance plan, announced in February 2009 and described in more detail through numerous issuances and subsequent releases. The administration speculates that its programs will help 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. The plan has multiple elements:
- Refinancing through Fannie Mae and Freddie Mac. Under the plan, 4 to 5 million "responsible" homeowners with Fannie Mae or Freddie Mac loans, who owe more than 80 percent of their homes' value, are eligible to refinance at lower rates even if they have negative equity on their loans up to a 105 percent loan-to-value ratio. The program helps only homeowners occupying the property, not individuals who own property as an investor.
- Loan modifications with subsidies to lenders. Under a $75 billion loan modification program aimed at 3 to 4 million at-risk homeowners, lenders are responsible for bringing down interest rates so that a borrower's monthly mortgage payment is no more than 38 percent of pre-tax income. Treasury then will match those reductions dollar-for-dollar to bring payments down to 31 percent of pre-tax income. Lenders must agree to keep the modified payments in place for five years. As part of this initiative, servicers will receive $1,000 for each successful modification, and up to $3,000 over three years if the borrower stays current. Mortgage holders also will receive $1,500 and servicers will receive $500 if the modifications are made before a borrower defaults. Borrowers will receive up to $1,000 in principal reductions each year if they stay current on the modified loan.
- Insurance fund. Treasury and FDIC will create a $10 billion insurance fund to protect lenders against home value declines as a means to discourage foreclosures based on anticipation of falling home values.
- Treasury investment in Fannie/Freddie. To help retain confidence in markets necessary to maintain low interest rates, the Treasury Department will increase an existing funding commitment to Fannie and Freddie by buying $200 billion of their preferred stock, up from the agency's previously preferred stock purchase agreement of $100 billion.
- Fannie/Freddie Portfolios. Treasury also will permit Fannie and Freddie to increase the size of their portfolios from $850 billion to $900 billion.
The Administration's Home Affordable Program is multifaceted and dynamic, and is frequently updated to reflect the continuous changes and additions made to the various programs. ABA members that seek to participate in these programs should directly access the federal government's especially dedicated websites in order to ensure the latest and most complete information. Please see the following websites for information and access to:
ABA Staff Contact: Bob Davis, (202) 663-5588, rdavis@aba.com
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