HOMEOWNER AFFORDABILITY AND STABILITY PLAN: PART I

There are two parts to the plan announced last week to help troubled homeowners. To clarify what we know so far, I’m going to focus on Part I:  the “Affordability” part of the plan.  This section addresses homeowners who can still afford their mortgages but who have been unable to refinance to lower rates because of falling home values.

Full eligibility details will be announced by the Obama administration on March 4, but we do know a few things now:

Does this apply to all loans?   No, only to loans owned or securitized by Fannie Mae or Freddie Mac (after March 4, you can call your lender and ask if this is true in your case)
 Does this apply to rental property loans and 2nd homes?  No, it only applies to primary residences
What if I owe more than my home is worth?   This is one of the plan limitations for Californians.  Under the plan, you will still be allowed to refinance, but only if you owe a little more than the home is worth.  Specificially, your loan cannot exceed 105% of the home’s current value
Will my payments go down? Not necessarily.  You’ll merely have access to current market rates without any special pricing or government subsidy.  Furthermore, if you have an interest-only loan now, your payment could actually increase if you refinance into a normally amortizing 30 yr fixed rate loan
Will mortgage insurance be required?   We’ll have to wait until March 4th to find out.  Since first mortgages that exceed 80% of a home’s values are typically required to have mortgage insurance, this would be a reasonable assumption.  However, since it offsets the benefit of lower rates for those who previously did not have to have it, maybe the plan will address this another way
Will my principal balance be reduced?   No, the primary benefit to homeowners is to provide access to today’s lower rates for those whose declining home values might prevent refinancing.  It is not the intent of this section of the plan to reduce the amount owed.
That’s my summary of Part I.  Stay tuned for an analysis of Part II:  the “Stability” piece…