Overview of the Obama Housing Aid Plan and How it will Help?

Overview of the Obama Housing Aid Plan and How it will Help?

While lenders all found a way to say “yes” to every prospective homeowner the loan packages they approved set up a domino effect for defaults. For years lenders approved loan packages that included interest-only and second piggyback loans with small to zero down payments eventually leaving homeowners with troubled mortgages. This accounted for more than half of the mortgage crisis and, coupled with the soaring unemployment rates, sent the housing market spiraling; but our new presidential administration has initiated a new housing aid plan to get us back on track.

As an incentive to modify loans at a lower interest rate, the government initially gave over $50 billion in rescue funds to mortgage lenders. Mortgage companies would get $500 upfront for each modified loan, plus $250 a year for three years as long as the borrower doesn’t default. But the mortgage company must sign up for the program; and although advantageous to the lender, it’s completely at the lender’s discretion whether or not to utilize this housing plan.

The housing aid plan was initiated to allow more than 500,000 troubled homeowners to swap risky loans for traditional 30-year fixed rate mortgages that included lower interest rates. Homeowners that qualify for this program will see their mortgage payments decrease almost by half.

Lowering the interest rate on loans will automatically achieve a lower payment however the program also offers incentives for principal reductions and at your lender’s discretion, modifications could include upfront reductions of the loan principal.

So how will this plan help?

The president’s plan will focus largely on three major categories:

1. Those home owners who have already defaulted on their mortgages

2. Those who are current but have experienced loss of income through unemployment and/or other hardships

3. Those homeowners who are current on their mortgage payments, but drastically falling home values have put the value of their house far below their mortgage balance (they’ve become upside down in their equity)

Homeowners can get up to $1,000 over five years applied to their balance of their primary mortgage, and the government would pick up part of the lenders costs as well. Lenders would also be given the ability to remove second mortgages entirely in exchange for larger government payouts. It also requires the mortgage industry to change their process of approving loans.

For homeowners who are unemployed and owe more than their home is worth there are a few options to avoid foreclosure;

· With the lender’s permission, the homeowner can sell the property for less than the value of the loan which is known as a short sale.

· Or, the homeowner can sign the property title over to the lender as a deed in lieu of foreclosure

· Refinance

Many homeowners who aren’t qualified for this new housing plan are now being placed on a fast track to qualify for refinancing through the Freddie Mac and Fannie Mae program. Homeowners must apply through a FHA approved lender and refinance at a lower interest rate.

If you owe more than your home is worth you may qualify under the Homeowner Affordability and Stability Plan. A realtor can help you determine the value of your property and understand more about the program and eligibility guidelines.

Although this housing aid plan can help millions avoid foreclosure the problem sometimes remains with the homeowner not seeking help. Homeowners must make the first step by calling their lender. If you want to save your home there are programs to help you.