Obama unveils foreclosure plan worth $75 billion
President Barack Obama released his $75 billion plan to prevent foreclosures and stave off a further deepening of the housing crisis Wednesday, leading homeowners, Realtors and bankers in Cape Coral to figure out how the plan might help them.
Speaking in Phoenix, Ariz., Obama said foreclosures have a negative impact not only on affected homeowners, but on the surrounding homes and communities.
“In the end, all of us are paying a price for this housing crisis,” he said.
Obama’s plan includes loosening current restrictions on Fannie Mae and Freddie Mac, helping the mortgage giants refinance loans for homeowners who owe more than 80 percent on their home. That part of the plan is estimated to help up to 5 million people.
The new rules, to be enacted in two weeks, allow those holding mortgages backed by Fannie Mae and Freddie Mac to be refinanced at lower, fixed interest rates, even if they have less than 20 percent equity in their home.
The plan also provides incentives to lenders who modify loans to reduce monthly payments. Loan servicers will get $1,000 for each loan they adjust under the Obama guidelines, with another $1,000 to be paid each year for three years as long as the borrower stays current on the loan.
Homeowners, too, will receive $1,000 every year for five years, provided they stay current on the mortgage.
Another $2,000 — $500 for servicers and $1,500 for mortgage holders — will go to modify loans in danger of falling behind but not yet in default.
Chris Porter, co-owner of Cape Realty, is more concerned about how the plan will help people who are underwater, or owe more on their mortgage than their home is worth.
“A lot of these people just don’t want the houses anymore,” she said.
Porter added that she would like to see a reduction in the principal amount of mortgage loans included in the plan.
“I think unless that happens, it won’t help this area much,” she said.
Under Obama’s plan, the Treasury Department will create a $10 billion insurance fund to keep homeowners from walking away from homes even after their mortgages have been adjusted because of decreasing home values. Declines in the home price index would determine the insurance payment on modified loans.
As with the American Recovery and Reinvestment Act Obama signed into law Tuesday that carries an $8,000 tax cut for first-time homebuyers, Cape residents must wait and see how and when the housing plan could help them.