18 February 2009
http://www.treas.gov/press/releases/tg33.htm
February 18, 2009
tg-33
Homeowner Affordability and Stability Plan
Executive Summary
Read the Homeowner Affordability and Stability Plan Fact
Sheet
HERE
Read Support Under the Homeowner Affordability
and Stability Plan: Three Cases
HERE
The deep contraction in the economy and in the housing market has created
devastating consequences for homeowners and communities throughout the
country.
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Millions of responsible families who make their monthly payments and
fulfill their obligations have seen their property values fall, and are
now unable to refinance at lower mortgage rates.
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Millions of workers have lost their jobs or had their hours cut back,
are now struggling to stay current on their mortgage payments
with nearly 6 million households facing possible foreclosure.
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Neighborhoods are struggling, as each foreclosed home reduces
nearby property values by as much as 9 percent.
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Refinancing for Up to 4 to 5 Million Responsible Homeowners to
Make Their Mortgages More Affordable
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A $75 Billion Homeowner Stability
Initiative to Reach Up to 3 to 4 Million At-Risk
Homeowners
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Supporting Low Mortgage Rates By
Strengthening Confidence in Fannie Mae and Freddie Mac
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The Homeowner Affordability and Stability Plan is part of the President's
broad, comprehensive strategy to get the economy back on track. The
plan will help up to 7 to 9 million families restructure or refinance
their mortgages to avoid foreclosure. In doing so, the plan
not only helps responsible homeowners on the verge of defaulting, but prevents
neighborhoods and communities from being pulled over the edge too, as defaults
and foreclosures contribute to falling home values, failing local businesses,
and lost jobs. The key components of the Homeowner Affordability and Stability
Plan are:
1.
Affordability: Provide Access
to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling
Home Prices
·
Enabling Up to 4 to 5 Million Responsible
Homeowners to Refinance: Mortgage rates are currently
at historically low levels, providing homeowners with the opportunity to
reduce their monthly payments by refinancing. But under current rules, most
families who owe more than 80 percent of the value of their homes have a
difficult time refinancing. Yet millions of responsible homeowners who put
money down and made their mortgage payments on time have through no
fault of their own seen the value of their homes drop low enough to
make them unable to access these lower rates. As a result, the Obama
Administration is announcing a new program that will help as many as 4 to
5 million responsible homeowners who took out conforming loans owned or
guaranteed by Fannie Mae or Freddie Mac to refinance through those two
institutions.
·
Reducing Monthly Payments:
For many families, a low-cost refinancing could reduce
mortgage payments by thousands of dollars per
year:
o Consider a family that took
out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50%
on a house worth $260,000 at the time. Today, that family has about $200,000
remaining on their mortgage, but the value of that home has fallen 15 percent
to $221,000 making them ineligible for today's low interest rates
that now generally require the borrower to have 20 percent home equity. Under
this refinancing plan, that family could refinance to a rate near 5.16%
reducing their annual payments by over $2,300.
2.
Stability: Create A $75 Billion
Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk
Homeowners
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Helping Hard-Pressed Homeowners Stay in their
Homes: This initiative is intended to reach millions
of responsible homeowners who are struggling to afford their mortgage payments
because of the current recession, yet cannot sell their homes because prices
have fallen so significantly. Millions of hard-working families have seen
their mortgage payments rise to 40 or even 50 percent of their monthly income
particularly those who received subprime and exotic loans with exploding
terms and hidden fees. The Homeowner Stability Initiative helps those who
commit to make reasonable monthly mortgage payments to stay in their homes
providing families with security and neighborhoods with stability.
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No Aid for Speculators: This initiative
will go solely to helping homeowners who commit to make payments to stay
in their home it will not aid speculators or house flippers.
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Protecting Neighborhoods: This plan will
also help to stabilize home prices for all homeowners in a neighborhood.
When a home goes into foreclosure, the entire neighborhood is hurt. The
average homeowner could see his or her home value stabilized against declines
in price by as much as $6,000 relative to what it would otherwise be
absent the Homeowner Stability Initiative.
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Providing Support for Responsible Homeowners:
Because loan modifications are more likely to succeed
if they are made before a borrower misses a payment, the plan will include
households at risk of imminent default despite being current on their mortgage
payments.
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Providing Loan Modifications to Bring Monthly Payments to Sustainable
Levels: The Homeowner Stability Initiative has a simple
goal: reduce the amount homeowners owe per month to sustainable levels. Using
money allocated under the Financial Stability Plan and the full strength
of Fannie Mae and Freddie Mac, this program has several key components:
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A Shared Effort to Reduce Monthly
Payments: For a sample household
with payments adding up to 43 percent of his monthly income, the lender would
first be responsible for bringing down interest rates so that the borrower's
monthly mortgage payment is no more than 38 percent of his or her income.
Next, the initiative would match further reductions in interest payments
dollar-for-dollar with the lender to bring that ratio down to 31 percent.
If that borrower had a $220,000 mortgage, that could mean a reduction in
monthly payments by over $400. That lower interest rate must be kept in place
for five years, after which it could gradually be stepped up to the conforming
loan rate in place at the time of the modification. Lenders will also be
able to bring down monthly payments by reducing the principal owed on the
mortgage, with Treasury sharing in the costs.
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"Pay for Success" Incentives to
Servicers:
Servicers will receive an up-front fee of $1,000 for each
eligible modification meeting guidelines established under this initiative.
They will also receive "pay for success" fees awarded monthly
as long as the borrower stays current on the loan of up to $1,000
each year for three years.
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Incentives to Help Borrowers Stay
Current: To provide an extra incentive
for borrowers to keep paying on time, the initiative will provide a monthly
balance reduction payment that goes straight towards reducing the principal
balance of the mortgage loan. As long as a borrower stays current on his
or her loan, he or she can get up to $1,000 each year for five years.
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Reaching Borrowers Early:
To keep lenders focused on reaching borrowers who are trying
their best to stay current on their mortgages, an incentive payment of $500
will be paid to servicers, and an incentive payment of $1,500 will be paid
to mortgage holders, if they modify at-risk loans before the borrower falls
behind.
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Home Price Decline Reserve Payments: To
encourage lenders to modify more mortgages and enable more families to keep
their homes, the Administration -- together with the FDIC -- has developed
an innovative partial guarantee initiative. The insurance fund to
be created by the Treasury Department at a size of up to $10 billion
will be designed to discourage lenders from opting to foreclose on mortgages
that could be viable now out of fear that home prices will fall even further
later on. Holders of mortgages modified under the program would be provided
with an additional insurance payment on each modified loan, linked to declines
in the home price index.
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Institute Clear and Consistent Guidelines for Loan
Modifications: Treasury will develop
uniform guidance for loan modifications across the mortgage industry, working
closely with the bank agencies and building on the FDIC's pioneering work.
The Guidelines will be used for the Administration's new foreclosure prevention
plan. Moreover, all financial institutions receiving Financial
Stability Plan financial assistance going forward will be required to implement
loan modification plans consistent with Treasury Guidance. Fannie Mae
and Freddie Mac will use these guidelines for loans that they own or guarantee,
and the Administration will work with regulators and other federal and state
agencies to implement these guidelines across the entire mortgage market.
The agencies will seek to apply these guidelines when permissible and appropriate
to all loans owned or guaranteed by the federal government, including those
owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury,
the Federal Reserve, the FDIC, Veterans' Affairs and the Department of
Agriculture.
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Other Comprehensive Measures to Reduce Foreclosure
and Strengthen
Communities
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Require Strong Oversight, Reporting and Quarterly Meetings with
Treasury, the FDIC, the Federal Reserve and HUD to Monitor
Performance
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Allow Judicial
Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have
Run Out of Options
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Provide $1.5 Billion in Relocation and Other Forms of Assistance
to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization
Funds
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Improve the Flexibility of Hope for Homeowners and Other FHA
Programs to Modify and Refinance At-Risk Borrowers
3.
Supporting Low Mortgage Rates By
Strengthening Confidence in Fannie Mae and Freddie
Mac:
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Ensuring Strength and Security of the Mortgage Market:
Today, using funds already authorized in 2008 by Congress
for this purpose, the Treasury Department is increasing its funding commitment
to Fannie Mae and Freddie Mac to ensure the strength and security of the
mortgage market and to help maintain mortgage affordability.
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Provide Forward-Looking Confidence: The
increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious
efforts to ensure mortgage affordability for responsible homeowners, and
provide forward-looking confidence in the mortgage market.
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Treasury is increasing its Preferred Stock Purchase Agreements to $200
billion each from their original level of $100 billion each.
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Promoting Stability and Liquidity: In addition,
the Treasury Department will continue to purchase Fannie Mae and Freddie
Mac mortgage-backed securities to promote stability and liquidity in the
marketplace.
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Increasing The Size of Mortgage Portfolios:
To ensure that Fannie Mae and Freddie Mac can continue
to provide assistance in addressing problems in the housing market, Treasury
will also be increasing the size of the GSEs' retained mortgage portfolios
allowed under the agreements by $50 billion to $900 billion
along with corresponding increases in the allowable debt outstanding.
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Support State Housing Finance Agencies:
The Administration will work with Fannie Mae and Freddie
Mac to support state housing finance agencies in serving homebuyers.
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No EESA or Financial Stability Plan Money:
The $200 billion in funding commitments are being made
under the Housing and Economic Recovery Act and do not use any money from
the Financial Stability Plan or Emergency Economic Stabilization
Act/TARP.
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