Obama to Subsidize Interest Rates for Homeowners

by admin on February 18, 2009

Obama just announced a new $75 billion dollar plan today that could help up to 9 million homeowners who are stuggling mighily from rapidly declining housing values and rising month payments. This move by Obama is a pronouced shift in policy from President Bush’s plan to keep funneling money into the banks in the hopes that they might start lending money. Unfortunately the banks haven’t been lending enough money and the US economy is still struggling and shedding jobs on a daily basis.

Obama’s plan will allow home owners to refinance their mortgage loan or be able to get a loan modification. This plan is greatly increasing the size of the government bailout by shifting attention on to homeowners who can still make their monthly mortgage payment, but may have trouble doing that in the future.

This program is not mandatory, you can elect to sign up for this if you so decide. The great thing about this plan is that it gives incentives to mortgage servicers by giving them up to $1,000 for each loan modification and up to $1,000 a year if the homeowner is able to continue to make their payments.

In addition, there are plans to work out a deal with Congress to change some of the existing bankruptcy laws and allow judges to assist with loan modifications.

Home prices have fallen dramatically in the last year and many people owe much more on their home that it’s worth. This new Obama plan may helop up to 5 million people stay in their homes, which would be a huge win for everyone if they can keep their houses and keep foreclosure numbers from becoming a tidal wave.

The significant aspect of this plan is that if you owe more than 80% of your home’s value you can still get a loan modification, which typically has not been allowed. Most banks and lenders like to see at least 20% equity in your home before they will allow you to modify your loan. Right now you have to be current on your mortgage payment to be eligible for this new program which is scheduled to kickoff March 4. You will also be able to take advantage of historically low interest rates, which right now are close to 5% – a tremendous savings over 7 and 8% which have often been the norm in the US.

The Homeowner Stability Iniative (the nickname for this Obama plan) has a stated goal of trying to bring your mortage to a level so that it only represents about 31% of your overall income. The loan servicer will try to bring your payment down to 38% of your income level and the government will chip in 7% to get the overall level of your payment down to about 31%.

Coming out of this, the US Treasury Department will work on building rules for loan modifications for all the lenders, bank, mortgage servicing companies and other institutions that participate in this federal program.

It’s important to also point out that judges will be able to weird a lot more power in determining mortgage balances.

It’s a tough econonmy out there and we can only hope this new plan will help to stabilize things so we can get back to building wealth and creating jobs.

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