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Finally, Details of Obama’s Foreclosure Plan Are Out

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By : Cassiano Travareli    99 or more times read
President Barack Obama’s much awaited $75-billion foreclosure program was finally launched in Arizona, which has one of the three highest foreclosure rates in the country in 2008. Obama’s plan is expected to prevent up to 9 million troubled homeowners from going into foreclosure.

Obama’s plan differs with the foreclosure schemes of the previous administration in its focus on borrowers who are updated in their mortgage payments but are in danger of default and its use of incentives to encourage mortgage lenders to work out loan modifications.

One of Obama’s schemes is targeted at about 5 million troubled borrowers classified as responsible homeowners. These borrowers are at risk of foreclosure, but they are updated in their mortgage payments.

To be able to participate in this responsible-homeowner program, borrowers’ loans must have been issued or guaranteed by Freddie Mac or Fannie Mae and they must have paid at least 20 percent of their mortgages. It is also required that the new mortgage must not exceed 105 percent of the home’s current market value. If the new mortgage totals $199,500, including refinancing costs, the home’s market value must not be less than $190,000.

This program also allows homeowners to change loan terms to 15 years or 30 years at a fixed mortgage rate, using the current home loan rate which is hovering around 5 percent during the month of February. This provision greatly benefits borrowers whose loans were taken at high interest rates or flexible-rate arrangements. However, this program does not lower the loan balance.

Another scheme, called Homeowners Stability Initiative, aims to help another 4 million borrowers. This will reduce monthly payments to not more than 31 percent of a borrower’s monthly income. This initiative is also expected to increase and maintain home prices by preventing as much as $6,000 from being lost to price declines.

To encourage mortgage lenders and services to do their best to help more borrowers avoid foreclosure, Obama’s plan will pay $1,000 for every loan modification, plus another $1,000 per year for 3 years if the homeowner is updated with payments. Additionally, lenders are given $1,500 and servicers given $500 if they restructure loans before borrowers go into foreclosure.

Borrowers will also be rewarded by the program for maintaining their monthly payments. Their loan balances will be reduced by up to $1,000 per year for up to 5 years as if they are updated in their payments. In addition to these loan modification efforts, Obama’s plan also includes the purchase of mortgage-backed securities to keep mortgage rates low and the increase of the portfolios of Fannie Mae and Freddie Mac.
Cassiano Travareli has been educated in the finer points of the foreclosures market over 5 years.

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