The ABCs of Obama’s Foreclosure Plan

by Will Smith

The ABCs of Obama’s Foreclosure Plan

President Obama outlined in broad strokes yesterday his administration’s plan to stem the wave of foreclosures sweeping the country. There has been ample news coverage of the plan (see our recommendations at bottom), but we thought it would be helpful to provide a quick need-to-know summary for UrbanTurf readers. So without further ado:

  • The primary goal of the plan is to help homeowners facing foreclosure modify their mortgages to become more affordable. The reason mortgage modifications are the key is because they result in lower monthly payments that are more likely to be paid and less likely to result in delinquency and ultimately foreclosure.
  • The government will offer financial incentives to lenders to induce them to modify mortgages, something they have been generally unwilling to do as home values have plummeted.
  • Lenders will be offered $1,000 to modify each eligible mortgage, plus $1,000 per year for three years contingent on the homeowner keeping up with his or her modified mortgage payments. Homeowners themselves will also receive financial incentive to stay current on their payments: $1,000 a year for five years in the form of a mortgage principal reduction.
  • The key word is eligible. Only certain mortgages will be eligible for modification under the plan. “The plan I’m announcing focuses on rescuing families who played by the rules and acted responsibly,” Obama said as the opening to his speech yesterday. “I want to be very clear about what this plan will not do: it will not rescue the unscrupulous or the irresponsible by throwing good taxpayer money after bad loans.” Eligibility should not be misinterpreted to mean that only a handful of homeowners will benefit from the plan, however. On the contrary, the administration’s goal is to help up to 9 million homeowners prevent foreclosure.
  • The Treasury Department has committed $100 billion each to Fannie Mae and Freddie Mac so that the two institutions keep their interest rates lows. Between them, Fannie and Freddie own or guarantee almost half of all US mortgages.
  • The two controversies surrounding the plan are: Is it fair? and Will it work? The plan’s detractors argue that homeowners that were conservative and responsible are not getting any government help, while those who were less careful are. While there may be some truth to this, the administration’s position is that foreclosures hurt the entire country and therefore everyone has a vested interest in seeing them curtailed. As to whether the plan will work, there are complex arguments on both sides. The real answer seems to be: only time will tell.
  • Much of the plan’s nitty-gritty is still unclear. The administration said more details will be announced March 4th.

Want to know more? Check out these sources:

This article originally published at http://dc.urbanturf.com/articles/blog/the_abcs_of_obamas_foreclosure_plan/561

1 Comment

  1. Richie Rich said at 1:01 pm on Friday February 20, 2009:

    The real question for many of us in DC is whether the new plan will limit eligibility based on income in a manner similar to that for the Porkulus Bill’s tax “relief” (and every other relief measure).  In other words, will couples making over $150k (i.e., a whole lot of DC residents with mortgages) even be eligible for this plan?  Methinks not, regardless of the underlying mortgage situation… because, you know, we’re “rich” (and thus evil).

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