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Obama's Mortgage Plan Takes Off

March 05, 2009

By Clark Schultz | Money Rates Columnist


The Treasury Department announced details this week of the Obama administration's mortgage relief plan designed to keep Americans in their homes and out of foreclosure. The $75 billion plan will offer subsidized refinancing or loan modifications for up to nine million American households who qualify for the program.  Lenders and mortgage service providers have now received the new regulations from the government and should begin immediately implementing the new mortgage relief program. The plan will not provide relief to Americans who have equity in their house or help provide better mortgages on 2nd homes, vacation homes, and speculative properties. Also the plan does not cover Americans who are owe more than 105% of the current value of their house. At this time it is unclear what refinance options these American will have.




Many Americans are unable to refinance their homes because their mortgage balance is too high in relation to the value of their house. A decrease in house prices in the United States has left an estimated 20% of households "under water" (with negative equity) on their mortgage with millions more approaching the 100% loan-to-value ratio. The president's plan was specifically created to help these homeowners who are not able to refinance due to the loss of equity in their house. As part of the plan, a Home Affordable Refinance will help people to refinance at better rates if they are current on their mortgage payments and have mortgage loans held by Freddie Mac or Fannie Mac. If you qualify homeowners should contact their mortgage service provider or lender to apply. Information including your household income, tax returns, credit card balances, and installment debt will need to be submitted to process the application through your lender.  Mortgage service providers are expected to be fully operational within a few weeks to handle the new loan refinancing applications from this program. The government has also provided a hotline for immediate questions at 888-995-HOPE.


Loan Modifications


The economic recession has pressured millions of Americans who can barely make their mortgage payments. Whether it is from a job loss, a mortgage rate increase, or other financial hardship; these Americans may qualify for a government-subsidized loan modification. As long as their home is their primary residence and their mortgage was taken out before January 1, 2009 for less than $729,750, a homeowner can document their financial hardship and apply for a loan modification. Lenders have been directed to halt foreclosure proceedings for loans that meet the minimum eligibility requirements, but homeowners who are already late on one or two payment should contact their lender immediately.  Complete details on the government's mortgage plan are available at www.financialstability.gov.


Mortgage Rates


The Obama plan is designed to provide relief to millions of Americans, but does not cover homeowners who are not at risk of foreclosure. These Americans can still lower their monthly payments on their mortgage loan by refinancing their loans at lower interest rates. Industry experts are mixed on the direction of mortgage rates. One camp suggests that lenders will pass on to consumers their costs from the Obama plan by increasing the rates and fees on mortgages. However, some mortgage experts are forecasting a long cycle of lower mortgages rates as the government works with lenders to keep rates affordable. One thing everybody agrees upon is that it's beneficial to compare the rates and terms on your current mortgage and home equity loan to see if there is a better deal out there for your household.





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