Foreclosure Prevention gets boost from President Obama

President Obama has finally (Feb 18th) announced his long awaited plan to help homeowners prevent foreclosure. This will benefit not only those who cannot pay their mortgages, but also those whose home values have been depressed by the rapidly growing supply of foreclosed homes.

Obama claims that this plan will assist with foreclosure prevention for between seven and nine million homeowners.  (It is not designed to help speculators or other investors.)   The devil is in the details, but the important parts of the plan he announced are these.
1. New help for those whose house value has dropped below their mortgage if you used Fannie Mae or Freddi Mac. 

Four to five million homeowners who received their mortgages (or had them insured) through Fannie Mae or Freddie Mac will be able to refinance at a lower rate.   Right now if your house is under water (your mortgage exceeds current value) you cannot refinance.  This restriction is being removed, at no cost to the government.  “While Fannie and Freddie will receive less money in payments, they will save from reduced foreclosures.”  With interest rates at new lows, this can be a big boon to people who feel totally gypped by the equity they have lost in their houses.  If you do not know if Fannie or Freddie have anything to do with your mortgage check your monthly statement or ask the company that services your mortgage.

2. Government help to spur modification of mortgages for homeowners who are in foreclosure, or at risk of foreclosure.

This is aimed primarily at homeowners with subprime mortgages.   Subprime loans make up 12% of all mortgages but half of all foreclosures.  The Obama plan will establish “clear guidelines” for subprime lenders to modify mortgages to lower payments by refinancing at lower interest rates.  This will be facilitated by a government subsidy  to replace some part of the lost interest payments.   This will benefit up to four million homeowners, Obama claimed.
3. The government wll take steps to keep interest rates low.

The Treasury will provide up to $200 million capital to keep interest rates low by buying up mortgages with lower interest rates.
4. Bankruptcy judges get new authority. 

Obama promised a “wide range of reforms” to help people stay in their homes.   The most important of these reforms (and maybe the single most important element of this whole plan) will be to allow bankruptcy judges to “cram down” mortgages on primary residences — something they can already do to second homes, investment properties and even yachts owned by people who file bankruptcy.  This has been the single most important action we have been pushing for since all this began (see our Previous Blog articles on Foreclosure Prevention).
Obama hopes all this will be in place by March 4th, but you may want to start now to get in touch with your lender to see how this affects their attitude toward your situation.  They have been holding off doing anything until this plan was announced.  Now it has been annnounced.
If your financial situation is really tough, this is the time to start talking to a bankruptcy attorney.  They might be able to get you the best deal of all, especially if you have been laid off from work or have unpayable medical bills.

Also see our main site Article on Foreclosure Prevention.

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