Will Obama's Foreclosure Prevention Plan Help You?

[Feb 20, 2009.]

 

On Wednesday, President Obama unveiled his $75 Billion plan to help homeowners who are finding it difficult to make their mortgage payments. Obama hopes to help nine million Americans who are currently unable to refinance.

The plan is designed to help 4 to 5 million homeowners that are currently on time with their payments but unable to refinance because their mortgage exceeds 80 percent of the value of their home. Details of who will qualify and how the plan will work will be made available sometime before March 4th. It is believed that only those homeowners who obtained loans through Fannie Mae or Freddie Mac will qualify.

Another 4 million homeowners who are at risk of foreclosure will benefit from loan modifications subsidized by the government. The goal is to reduce the payments for borrowers to 31 percent of their gross income. Lenders who received bailout funds from the government will be forced to participate.

"The government could and should do more and I think they are being overly optimistic about the number of people that are going to be helped by this," said Professor Chris Mayer, senior vice Dean at Columbia Business School in a recent article by Reuters.

"It will help foreclosures, but the plan falls short in several ways, namely it is missing a provision that provides a safe harbor for servicers to modify mortgages," he said.

Mayer said about 50 percent of mortgage servicers have some sort of restriction on modification in the pooling and servicing agreement, which can only be changed through legislation.

Ultimately, the goal is to help stabilize the housing market. By making mortgages more affordable and preventing future foreclosures, housing prices will begin to stabilize.

 

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.