In his recent State of the Union address on January 24, 2012, President Obama shared his plan to heal the housing market and help homeowners. What does it mean for us? Below are the key aspects of the President’s Plan.
President Obama’s Plan to Help Responsible Homeowners and Heal the Housing Market:
1) Allow borrowers who are current on their loan payments to refinance and take advantage of historically low rates.
2) Create a Homeowner Bill of Rights which essentially would encourage a simple mortgage disclosure form (so borrowers better understand the loans they are taking out) that includes full disclosure of fees and penalties. It would aim to protect families from being put into foreclosure by giving them the right to appeal the foreclosure.
3) Move to allow up to 12 months of forgiveness to unemployed borrowers before foreclosing. Many homeowners in California, due to the banks being overwhelmed with foreclosures, are currently living in their homes even longer than one year without paying their mortgage.
4) Investigate Mortgage Origination and Servicing abuses to reduce the type of misconduct in the future that contributed to the financial crisis. Note: Many homeowners put themselves into adjustable rate loans that they could afford at the time, but couldn’t afford a couple years later.
5) Transition Real Estate Owned (REO) property to rental housing in an attempt to reduce the inventory of unsold homes (supply) and stabilize housing prices.
How Can You Benefit?
Let’s say you’re a borrower with a non-Government Sponsored Enterprise (GSE) loan (this means your loan is NOT insured by FHA or owned by Fannie Mae, Freddie Mac or Ginnie Mae) that originated in 2005 with a 6% rate and an initial balance of $300,000–which means payments of about $1,800 per month. The outstanding balance is now about $272,000 but your home is only worth $225,000 now, leaving a loan-to-value ratio of about 120%.
Even though you have been paying your mortgage on time, it’s hard to refinance given the value of your home versus the amount of your loan. Under the President’s plan, you would be eligible to refinance into a 4.25% 30-year loan which would reduce your monthly payments by about $460 per month and substantially decrease the total amount of interest paid over the lifetime of your loan.
What are your thoughts on President Obama’s Plan? Share your opinion in the Comments section below.
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