Feb 20, 2009
The President’s housing plan could not have been announced at a better time. Obama’s stimulus plan was just signed into law and the stock market fell close to its lowest point in over 6 and a half years! The Fed also said the unemployment rate could jump to as high as 8.8% in the next year. We need more from the administration to fix the worst financial crisis in nearly 80 years.
Many questions still surround the announcement of the plan. Is the housing plan the additional boost we need? Will it allocate enough money to truly fix the foreclosure rate? Will this three-part plan really save close to 9 million American homeowners?
What Obama’s Housing Plan Does
- Makes it easier to refinance: the plan changes the guidelines that used to give people only 80% of the home’s value; the new plan now gives people the ability to borrow up to 105% of their home’s value.
- Gives the lenders reason to modify the loans: the government will take on part of the loss the lenders would face if they refinanced. This will affect the home owner’s debt to income ratio. The goal is to get this ratio to below 31%, with the government paying part of the difference.
- Maintains Credit Flow: the treasury and Federal Reserve will continue to buy mortgage backed securities. This will maintain liquidity, ultimately freeing up capital and credit.
The short and long term objectives of this housing plan seem clear. Bringing down the interest rates of mortgages through loan modification will put more money in the hands of millions of consumers. Given this governmental aide, it is important that the citizens of America acknowledge that we too play a role in the solution. This is where our President called on us to change our ways. This is why he said “the party is over.”
We have to take it upon ourselves to be sure that we are smarter with how we now use the money we save from the mortgages. Yes, people will buy more with the extra money, activity that we need to boost our economy. Hopefully they will have learned from past mistakes and will begin to put the money away. We need to change our ways a as whole. This in turn will also help our economy get back on its feet.
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