Aloha Friday,
On February 18 in Mesa, Arizona, President Obama revealed the general outlines of his Homeowner Affordability and Stability Plan. The general outline of the plan was sketched out by the White House, with much more detail to come. The planned effective date is March 4, 2009.
In general, the President set forth a program to allow borrowers with mortgage payments in excess of 31% of their current gross income to modify the first lien loans on their property. The amount of the modified loan may not exceed the current Fannie Mae or Freddie Mac limits. In the first tier, lenders will reduce monthly payments to 38% of the borrower’s gross monthly income. Normally this will be done through a reduction in the interest rate and not a reduction in the principal balance. Beyond this lenders and the government may share the cost of reducing monthly payments to 31% of gross income levels. The cost of the second tier of reductions will be split between the government and the lender. Servicers and lenders who complete loan modifications when their borrowers are still current on payments will be given a bonus.
Where homeowners are upside down on their homes but current on their payments, Fannie Mae and Freddie Mac will both be allowed to buy new first lien loans with an LTV of up to 105% of the current value of the property. The devil of course is in the details, which will not be made public until the March 4th effective date.
Two other additional issues:
1. As additional protection, the Treasury Department will establish a $10 billion insurance fund which will compensate lenders if home prices continue to drop or where borrowers once again go into default.
2. President Obama also will seek a modification of existing bankruptcy law to allow judges to reduce the interest or the principal amount of loan balances in bankruptcy proceedings. Obviously this is one of the most politically controversial aspects of the plan.
Rates are a tad up this week, but holding steady overall. Please let us know if we can help in any way. Have a great weekend.
-Dean | 
