In my Indiana bankruptcy blogs over the past few months, I’ve been tracking the legislative efforts to help U.S. homeowners stay in their homes. Just two weeks ago, The Obama administration outlined key details of a housing rescue plan.
According to a U.S. Department of the Treasury memo, there are two basic parts to the housing rescue plan:
Mortgage refinancing program
This is for people who have mortgages backed by Fannie Mae or Freddie Mac, and who are not behind on mortgage payments. (Normally, these borrowers would not be able to refinance because the value of their homes has dropped, making the amount they still owe more than 80% of the current value of the home.) Under the Home Affordable Refinance program, these homeowners would qualify to move into a 30 year fixed rate mortgage.
Mortgage modification program
This is for people who are in danger of falling behind on their mortgage payments and who are in danger of losing their homes to foreclosure. The program is targeted towards homeowners at risk due to layoffs, illness or other hardships, or dramatic increases in expenses. Borrowers with high total debt will qualify for this program, but only if they enter a HUD-certified debt counseling program.
The lender will reduce monthly payments to no more than 38% of a borrower’s income, then share with the federal program the costs of reducing down to 31% of the homeowner’s income. The modified payments will be kept in place five years, with the ability to extend up to 40 years. (Lenders can reach the target levels by reducing interest down as far as 2%, and/or by modifying the principal of the loan.
As a bankruptcy attorney in Indiana, I very often find myself dealing with foreclosure issues, and finding a compromise solution with mortgage lenders is definitely one of the things I work on with bankruptcy clients. I’ve also been following the news about Fannie Mae and Freddie Mac, the two mortgage giants who buy mortgages from lenders, package them into investments, and then guarantee the principal and interest on those investments. Both were founded before I began my bankruptcy law practice (FNMA in 1938, FHLMC in 1970), but I was especially interested in the fact that the “implicit guarantee” that the U.S. government would stand behind both these institutions if the need arose became an actual guarantee as of July 13 of last year. That guarantee is going to be crucial to the success of the president’s new housing plan, and so I’ll continue to keep you informed about the plan through these blogs.
Even in the short time since the housing plan was unveiled, I’ve seen a lot of both negative and positive press about it. The implementation procedures have not yet been clarified, so my purpose in this blog is to share the preliminary information available to me. In the meanwhile, my function as a consumer bankruptcy specialist in our state of Indiana hasn’t changed: I am here to help my Indiana clients understand all their options, whether those have to do with foreclosure or bankruptcy, and to do my part to ensure that the safety nets set up by the law are used by the folks who need them most.