Wednesday, February 18, 2009

Obama Sends $75 Billion to Homeowners in Foreclosure

If real estate is truly the root of the economic recession, then this new proposal from President Obama should help. The plan calls for $75 billion to help 9 million homeowners who can no longer afford their monthly mortgage payments and are at risk for foreclosure.

Here is how this plan would help.

If you owe more than 80% of your home’s value, this plan will help you refinance your mortgage. How will the value of your home be determined? Will they use the purchase price, current estimated market price based on other similar homes sold recently (which could be considerably lower), or some appraised value?

If you’re at risk for foreclosure, the $75 billion would be used to subsidize your mortgage interest rate. This would lower the interest rate you see while the lenders still receive their money from the government. The goal is to keep payments below 31% of income. But what happens when income suddenly drops to zero through the loss of a job? 31% of zero is still zero.

If you declare bankruptcy, a judge will have the authority to modify your mortgage. This is good news for consumers with no other options.

There are a number of other measures that affect lenders rather than consumers. The plan offers incentives for lenders to help at-risk borrowers who are not yet late with payments. $10 million will be set aside to protect lenders against further home price declines.

At this stage, this is just a proposal. The Senate and the House of Representatives will both draw up their own versions of this proposal and eventually agree on a bill. This could take some time, and as sentiment turns away from helping citizens directly, particularly if it is widely believed that homeowners generally find themselves in trouble due to their own choices and actions, there may be a struggle to turn this proposal into an agreed-upon law.

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