Orlando Florida Real Estate Blog

Borrowers who are 'underwater' and current will be able to refinance -- as will those whose payments are unaffordably high. And there are incentives for lenders and borrowers.

What's in President Barack Obama's housing rescue plan for you?

Maybe lower house payments, and not just for those already in default.

"All of us are paying a price for this home mortgage crisis," Obama said in remarks at a ceremony announcing the program at a Phoenix-area high school.

The housing industry has been devastated by the nation's recession. Construction of new homes and applications for future projects both plunged to record lows in January as all parts of the country showed big declines in building activity. Analysts hope that a boost from government programs, including the efforts to stem foreclosures, will help stop the slide.

Headlining Obama's plan was a $75 billion Homeowner Stability Initiative, which would provide a set of incentives to lenders to cut monthly mortgage payments to sustainable levels.

Another key component: a new program aimed at helping homeowners who are "underwater" -- who owe more on their mortgages than their houses are worth. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 million to 5 million families do just that.

Here are the changes most likely to affect you.

Refinance, even if you're 'underwater'

Mortgage rates at near-record lows could make payments more manageable for homeowners trapped by falling prices. Though many of these owners are current on their payments, plummeting prices have kept them underwater. Homeowners whose mortgages were bought or guaranteed by Fannie Mae or Freddie Mac typically need equity of at least 20% to refinance. Obama's program would change that requirement, allowing even those who owe up to 105% of their home's value to refinance.

An example of the potential savings: A family has a 30-year fixed rate mortgage of $207,000 at 6.5% on a house worth $260,000 at the time of purchase. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen to $221,000, making the owners ineligible to refinance. Under the Obama program, that family could refinance to a rate near 5.16%, reducing annual payments by more than $2,300.

The administration stresses that homeowners need not be delinquent to qualify. Nearly 27% of U.S. homeowners with a mortgage are underwater, according to Moody's Economy.com. The Obama administration believes as many as 5 million homeowners with Fannie Mae- and Freddie Mac-backed mortgages will qualify.

You’ll probably have to contact the company that services your mortgage to find out whether your loan qualifies. Only conforming loans are included, so buyers who owe more than the jumbo limit of $417,000 -- for most locations -- are out of luck.

Payments could be reduced, not just delayed

Current mortgage-workout plans typically allow more flexibility with payments but rarely reduce the amount owed, a factor most experts cite in their failure to stem the foreclosure crisis. The Obama program concentrates on affordable monthly payments, with taxpayers and lenders sharing the costs of reducing interest rates and principal to an amount that borrowers can actually repay.

• Video: Is Obama's housing plan viable?

An example of the potential savings: The lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38% of pretax income. The Obama program would match further reductions in interest payments dollar for dollar with the lender to bring that ratio down to 31%. If a borrower were spending 43% of his monthly income on a $220,000 mortgage, that could mean a reduction in monthly payments of more than $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with taxpayers sharing that cost, too.

The Obama administration estimates the $75 billion program could reach up to 4 million at-risk homeowners.

Pay borrowers and lenders for success

Mortgage service companies will receive an upfront fee of $1,000 for each eligible modification. They will also receive pay-for-success fees -- awarded monthly as long as the borrower stays current on the loan -- of up to $1,000 each year for three years.

Borrowers who pay on time will receive a monthly balance-reduction payment that goes straight toward reducing the principal of the loan. As long as a borrower stays current, he or she can get up to $1,000 each year for five years.

To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrowers fall behind.

Remove uncertainty around further declines in prices

To encourage lenders to modify more mortgages and enable more families to keep their homes, the administration and the FDIC have developed an insurance fund (of up to $10 billion) that would pay mortgage holders for each modified loan if the home price index declines.

• Analysis: Why your home's value will keep falling

Institute consistent, clear guidelines for loan modifications

The Treasury will develop uniform guidance for loan modifications across the mortgage industry. All financial institutions receiving bailout money going forward will be required to implement loan-modification plans consistent with the guidelines. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Obama administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market.

The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.

$8,000 Home Buyer Tax Credit at a Glance

• The tax credit is for first-time home buyers only.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

***************************************************************************************

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of Real Estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit http://OrlandoShortSaleExpert.com or www.JerrySellsOrlando.com for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

P.S. If you are listing your home as a short sale in Orange County Florida and Orlando, Windermere, Winter Garden, or Ocoee Florida make sure you hire an agent who knows how to do short sales and has the experience to get the job done. We are doing successful short sale packages. Call us at 407-580-7011 to find out more about Orange County Short Sales and Orlando Area Short Sales.