Monday, April 13, 2009

Goals of the New Mortgage Bailout Program

As we have previously discussed, President Obama has recently unveiled a new mortgage bailout program. Its goal? To help many homeowners in this mortgage turmoil that has gripped the whole country.

With the former administration, several mortgage rescue plans came out under President Bush's administration. However, the problem mortgages continued to rise. They were hoping the mortgage crisis would bottom out, but we have yet to see a bottom in the housing market. The problem with the mortgage bailout under the prior administration is that a lot of homeowners were excluded out of that plan. The plan was set to modify homes of individuals who might have been able to qualify for a refinance, but many opted for a loan modification instead. Many homeowners did not qualify.

The new plan is expected to take this mortgage rescue plan to the next level. It is believed to be the plan that will allow the market to bottom out which will stable the housing market, in turn which stabilize our economy, start creating new jobs and boost our economy. Under the new homeowner affordability and stability plan, eligible borrowers who are on time with their payments, but have been unable to refinance due to their home value eroding, may now have an opportunity to refinance into a new 15 or 30 year fixed rate mortgage loan. Fannie Mae and Freddie Mac will be allowing refinancing of loans that they hold or that are have been mortgage backed securities.

The following are goals of this new program:

  • Help credit worthy borrowers who have been committed to paying their mortgages with affordable payments for the rest of their loan. Individuals with high interest, or if they had a teaser rate that will now be increasing might see a big difference in their house payment if they were to refinance. For those submitting a loan application, they will get a "Good Faith Estimate" which will include their new mortgage payment amount, the interest rate, and the total payment over the life of the loan. That homeowner can now use that "Good Faith Estimate" to compare it with what they are paying now and if it makes sense they can go with that option or stick with their original mortgage.
  • Provide help with an affordable fixed rate mortgage. Every loan refinanced under the plan will have either a 15 or 30 year mortgage option with a fixed rate interest. Which ends up giving the borrower tremendous savings over the life of the loan. This plan will not reduce the total amount owed on the loan.
  • Encourage borrowers to work towards maintaining ownership of the property. The plan will give incentive payments as a borrower makes there modified payments on time. This reduction will accrue on a monthly basis and will be applied directly to the mortgage.