Obama’s Help for Homeowners

President Obama unveiled his “Homeowner Affordability and Stability Plan” today which aims at helping stem the tide of foreclosures, and bring respite to hapless homeowners.

The NYT puts a price tag of $75 billion on it, however this is just an estimate. The actual cost may turn out to be much higher, but whats a few billion dollars, if it helps an estimated 9 million homeowners to keep their homes.

The plan lays out the following:


1. If you are current on your mortgage, but are unable to refinance at a lower rate because of a drop in the value of your home, you will have an opportunity to refinance into a 30 or 15 year fixed rate mortgage.

2. In order to be eligible for refinancing – you should owe less than 105% of the current market value of your property.

3. If you have both – a first and second mortgage; the amount due on the first mortgage should be less than 105% of the current market value of your property to make you eligible.

Modify Existing Mortgages

1. If you risk foreclosure, there may be a chance that the terms of your mortgage are modified by your lender. This plan provides incentives to mortgage lenders to modify existing mortgages.

2. It is not necessary to be behind your mortgage in order to qualify for a modification. There are three criteria for eligibility:

  1. You occupy your house as your primary residence
  2. Your monthly mortgage payment is greater than 31% of your monthly gross income
  3. Your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.

The final details of this plan are expected to be released on March 4. At that time the detailed and final plan will be declared.

If you have more questions about this program you can visit this link which has useful information about this process.

8 thoughts on “Obama’s Help for Homeowners”

  1. Manshu, I agree with your point that if this doesn’t work, we need to identify it sooner rather than later and act accordingly!

  2. Greetings Manshu,

    What struck me (like a hammer) is the vitriolic reaction folks had to this plan.

    Yesterday, I was reading comments on a CNN site. While I didn’t do an official tally of the 400+ comments, it was clear that the “I played by the rules and don’t want to pay/where is my bailout” people were in the majority by a lot.

    It disappointed me to see such an UnAmerican (my opinion) reaction to helping one another.

    Personally, I won’t get a single red cent from this plan directly. But if my neighbors can hold on to their homes, continue to buy from local shops, and fare better, I still win because my home’s value and my neighborhood will not deteriorate.

    Sure, some people didn’t read the fine print, and sure, some knowingly got in over their heads, but people are optimistic and never could have imagined this turn of events. None of us could have imagined either the fall that was to come or its pervasiveness.

    Every day, we read about thousands and thousands of people losing their jobs. Who could have known that they should buy a home that could have been supported by just one income or on half the same income (couples vs singles) as when one bought the home? Nobody short of survivors of the Great Depression.

    P.S. Initially I read it would cost $75 billion but BBC kept reporting $275 billion…now I know why. Thanks for that. I can stop scratching my head now. 🙂


    1. Imani,

      Thanks for visiting and commenting.

      I think most people shrug their shoulders and say – hey if you can help someone stay in their homes by taking a few extra hundred from me, go ahead and do it.

      Their emotion and I guess yours has nothing to do with money. Just with a spirit of helping out people who are in trouble, even if it is because of their own mistakes (and greed?)

      Only time will tell whether this will work or not, and I hope for the good of all involved that we recognize that it is not working soon enough so that we don’t end up creating a bigger problem.

  3. Kim,

    Personally, and this may just be because I hang out with the wrong set of guys – I don’t know a single person who bought a house in the past two years to spend his or her life in it.

    All, and I mean – everyone – that I know, who bought a house during the last couple of years, bought it, in order to sell it at a profit.

    That said, like you, even I don’t have a clear answer because all these people are now in deep trouble.

    They wanted to make a quick buck, but now they are in deep trouble.

  4. I’m not sure. Did all of these people make poor financial decisions? Or did other circumstances play into it? We tend to think that it’s someone’s own fault when things like this happen and in many cases this may be true. But it can’t always be the case.

    Would it make more sense to use some of money to get the people into an apartment or something so they don’t end up being homeless? I certainly don’t want any of the children to suffer.

    But if people were making poor decisions then, no, I don’t really want to pay for that – especially with money that we don’t have. I have never owned a home and I have a clear understanding of what I can and can’t afford. Should I request a rent bailout?

    I don’t have a clear answer to your question. I’m torn between assisting stupidity and not wanting people to suffer.

  5. Kim,

    The statment is factually correct, apart from the 50 billion number – that is just an estimate. I read today that Bloomberg estimates the cost of this at $275 billion dollars.

    But I am not sure I agree with the spirit of the statement.

    I want to bring up the following things:

    1. This money will be used from the funds for the – Bank Bailout, so tax payers were going to part with this money in any case.
    2. It is true that the government money or taxpayer money will be funnelled to mortgage companies, but the people who took out the mortgages were in any case going to – either pay this money to the mortgage companies or lose their houses. So I don’t see how this changes anything.
    3. The earlier administration was focused on saving the banks and financial institutions, whereas the present administration is expanding its horizon to include homeowners as well. But that may be just because the situation is much more dire today.

    Whether it will work or not? I don’t think it will work. The problem is too big for the government to solve. If you look at the Japanese bubble – after fifteen years, they are still stagnating.

    Whether we should try it or not? – I don’t know that I could say no to a plan that had the potential of allowing the current crisis to stem, even if I believed it had a very high chance of failing.

    You tell me, do you agree that taxpayer money should be used to bailout people who made poor financial decisions?

  6. I was reading an unrelated article about homeless people being moved into vacant houses on Democracy Now and the host, Amy Goodman, stated the following.

    “President Obama is set to unveil his long-awaited foreclosure prevention plan today at a speech in Phoenix, Arizona. Obama has promised to devote at least $50 billion to the plan; however, the package is not expected to mandate massive changes to stop defaulting mortgages. Rather, it’s likely to funnel government payments to mortgage companies, which will use that money to reduce borrowers’ interest rates and, therefore, their monthly payments.”

    Would you agree with that statement? Is that basically how it is going to work?

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