The President’s Homeowner Recovery Plan encompasses not only financial stability in credit markets, but tax incentives and credits to buyers to stimulate the economy and the housing industry.
Financial Stability in Credit Markets
The Treasury Department has implemented a series of programs to help our economic recovery including refinance plans to lower interest rates for homeowners, a capital program to provide banks with safeguards to allow them to start lending again and to help borrowers avoid foreclosure and a new lending program with the Federal Reserve regarding the securitization markets.
Financial Products and Securitization
Treasury Secretary Geithner wants the government to have authority over all financial products that are marketed to consumers including mortgages and credit cards. The government also wants tighter standards for mortgage lenders and stricter enforcement of lending rules. The government would like the Federal Reserve to have authority over monitoring extremely large hedge funds.
The plan also calls for changes to require that lending institutions hold more capital as reserves to avoid credit freezes in recessionary times, and stricter laws allowing regulators to take over any financial institution that may collapse and could threaten the entire financial market.
Also called for are tighter standards for U.S. mortgage lenders and stricter enforcement of mortgage lending rules.
In addition, an overhaul of the way the government monitors the procedures of clearing how banks lend and borrow money from each other is expected to avoid repeating the Bear Stearns and Lehman Brothers fiascos that took place last year when those companies ran out of funds to keep their businesses running.
The Home Affordable Refinance Program
Under the new Home Affordable Refinance Program millions of homeowners who were not eligible to refinance can now take advantage of lower interest rates as a result of the new plan.
· The property must be an owner occupied of one to four units. Investment properties or vacant properties are not eligible under the program.
· The loan must be owned or securitized by Fannie Mae or Freddie Mac.
· Homeowner must not be in default on their payments and all payments must be current.
· The balance owed on the borrower’s first mortgage must be approximately the same or slightly under current market value of the home.
· Borrower must show proof of income that they can make the new mortgage payment.
· Program is available now until June 10, 2010.
Home Affordable Modification Program
These program is strictly for homeowners who are about to be in default or who are already delinquent on their mortgage payments. It is designed to help homeowners save their homes from foreclosure by modifying their existing loans by decreasing the interest rate, increasing the loan term and possibly forgiving the arrearage on their loans so that the homeowner can afford their mortgage payments.
· Property must be owner-occupied one to four units. Investment or vacant property is not eligible.
· The unpaid first mortgage must be equal to or less than $729,750 (note that there is a higher limit for two to four unit properties.).
· Only loans that originated on or before January 1, 2009, and are first liens are eligible. Second lien mortgages do not qualify.
· If your mortgage payment including insurance, taxes and any homeowner association dues is more than 31% of your gross (pre-tax) monthly income you qualify.
· Borrower has a financial hardship such as a job loss or wage reduction, illness, etc. which will not allow them to make their current mortgage payment because it is no longer affordable to the borrower.
· Loans can only be modified once under the plan.
Tax Stimulus and Credits
With the President’s stimulus plan that was recently passed in February, first time home buyers can qualify for a tax credit on their federal income tax returns of up to $8,000 for qualified buyers who purchase homes between January 1, 2009 through November 30, 2009. The credit can be taken on the 2008 or 2009 tax return. There are some other requirements such as the homeowner must purchase the property as their primary residence and stay in the property for 36 months after the sale in order to avoid having to repay the money back to the government. A first time home buyer is considered anyone who has not owned a home in the past three years.