New Strategies Emerge From Obama’s Housing Planby Tim Manni
Hours before the president’s scheduled speech in Arizona this afternoon, an executive summary, a Housing Affordability and Stability Plan (HASP) fact sheet from the Treasury, and a blog post from the White House were released, providing us with a slight head start to mull through pages of information on the plan geared at helping seven to nine million troubled homeowners. Yet, what’s troubling is that with each document (and now the president’s speech), we are finding new and emerging details absent from others. Here’s what we’ve found so far.
The boldest strategy is a shared effort between the Treasury and lenders to reduce monthly payments; the lender will be responsible for lowering the borrower’s interest rate so their monthly payment is no more than the industry standard 38% of their monthly gross income. According to the executive summary, “Next, the initiative [although it's unclear, we assume the Treasury] would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. 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.” This is the first time a plan has mandated a loss sharing for investors. Many past scenarios revolved around lenders taking the brunt of the loss.
In the first stages of his speech, President Obama declared that his set of plans is aimed at helping not only underwater borrowers, but responsible ones as well.
On Friday we wrote a post about a new foreclosure-fighting strategy that emerged which seemed to focus on responsible homeowners. Aside from various loan-mod plans, no foreclosure-assistance program to date has targeted responsible borrowers. While the details remain quite thin at the moment, one of the goals is to help four to five million responsible homeowners (only with conforming loans through Fannie and Freddie) refinance into more affordable terms. Again, details are thin; click here to read questions that responsible homeowners are asking about the plan.
The discussion surrounding the president’s plan has just begun. Be sure to check back with us as we continue to dig into this housing rescue plan.