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Obama Unveiled Foreclosure Prevention Plan, Commits $275 Billion

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By : John Cutts    99 or more times read
U.S. President Barack Obama has released details of his foreclosure prevention plan which include reducing mortgage loan payments for about 9 million distressed homeowners and extending the role of Federal Home Loan Mortgage Corp. and Federal National Mortgage Association in trimming the number of foreclosed homes.

The president has committed to spend $275 billion for a program that will help nearly 5 million owners of distressed properties refinance their mortgage loans guaranteed or owned by Freddie Mac and Fannie Mae.

In his speech delivered in Mesa, Arizona, Obama said that the Department of Treasury will purchase at least $200 billion preferred stock in both government-sponsored enterprises.

Obama believed that lowering the foreclosure rate will stabilize housing prices and provide hope to families on the brink of financial ruin.

Meanwhile, Obama will support the proposal to revamp bankruptcy rules to allow U.S. judges to lower mortgage loans on principal residences to average market value, provided that homeowners make payments under a court-approved plan.

Under the Obama foreclosure prevention program, the president plans to use $75 billion from the almost $700 billion bailout fund to share the cost of reductions that mortgage lenders will make in interest of loan payments. It is expected that lenders will reduce monthly mortgage payments to allow borrowers to pay not over 38 percent of their pre-tax income.

The Treasury Department will help shoulder the costs lenders would incur when they cut down monthly payments to allow further reduction of 31 percent. The agency will do this by absolving a part of the mortgage balance of borrowers to help them avoid foreclosure.

The program is expected to help about 4 million owners of distressed properties and stabilize the average home market value against a price decrease of as much as $6,000.

Meanwhile, mortgage servicers will receive $1,000 for every loan that they have modified. They will also receive up to $1,000 for the three years that a borrower remains current.

At the same time, homeowners who remain current on their mortgage loans will receive $1,000 per year for five years. The cash incentive will be credited to the borrower’s principal balance to reduce his loan and help him avoid foreclosures.

Finally, the Treasury will formulate guidelines for the home loan modifications which would be applied to the foreclosure prevention program of the Obama Administration.

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