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.

Peer to peer lending is now all but gone; however, for a while, peer to peer lending was the last resort for many in getting a loan.  Since banks began reducing the number of loans and stopped taking new applicants, peer to peer lending communities were often times the last place to go.  One of these communities, Prosper.com, has changed the language on their application page.  It now reads “We are unable to fund your loan at this time. However, Prosper has agreements with trusted partners who will work with you to determine if you can get a loan. If you would like to proceed please fill in the application below.”

So what happened to peer to peer lending?  Well, the government basically came in and said individual people cannot judge whether or not to lend other people money.  I find this both upsetting and amusing.  I was involved in one of these peer to peer lending communities, both as a lender and as a borrower.  I thought I was a great judge of who to lend money to! If I had an issue or concern, I could always ask the borrower.  I used a loan that I received from a peer to peer lending community shortly after college to consolidate my debts into a lower rate.  I am a big fan of the entire experience-from setting up my profile and loan request, to navigating the bidding process-all the way to funding.  I received a fixed rate loan, unlike the credit cards, that I planned to pay it off in three years time, unlike the credit cards.

The more and more I look around the web, the less and less places I find that enable consumers to go and get loans.  Credit cards are disappearing left and right.  Straight up unsecured personal loans are all but gone. Peer to peer lending was the last stop for most people, and now that is gone.  With regulators finally getting involved, I guess it was inevitable.

Banks say they are lending again-it’s just that most people are scared to apply.  I have actually heard otherwise from the lending community.  Banks are just forced to be picker with the criteria of their borrowers.  It looks like pay day loans and their dangerous pitfalls are all that is left for most American borrowers who are desperate for money.

What can you do if you are in these tough situations?  Before making any move you should always know where your credit stands.  You can always sign up for a free online credit report if money is tight.  If you find out your credit is in bad condition you are going to have trouble trying to get a loan.  Debt management help may be your last resort.  Be sure to compare the companies and programs that are out there as some specialize in debt settlement, credit counseling, and bankruptcy.

Obama and Geithner are now cracking down on the banks.  They are saying that in order for banks to receive more money from the bailout funds, they will have to cap their pay.  They will also be held accountable for where the money is being spent and used.

Okay, let’s back track.  What happened to the first round of funds that was distributed while the old administration was running the show?  Well, no one really knows.  As a result of the government not holding banks accountable, the funds ran out.  The public learned of these banks’ continued spending, along with the $18 billion in bonuses that these bank executives earned.

When consumers apply for a loan or a mortgage, their financial past is put under a microscope during the underwriting process.  Banks need to know details about the potential borrower’s income, any outstanding debt and financial track records.  If this is standard procedure, why aren’t banks subjected to these checks when they ask to borrow money from us??  Why can banks borrow money from public funds and not have to show where it is being used or spent?

Thankfully it looks like Obama and Geithner will not allow this lack of accountability to continue with the second round of funding.  With the first round of funding distributed,  I have not seen any evidence of credit markets opening back up.  So where exactly did the money go?  We may never know where the first round of funds were spent.  Moving forward, hopefully the public will see evidence of more transparency when it comes to detailing how the rest of the funds are being used.

The big bank CEOs returned to Capitol Hill this week, adding to the overall chaos that characterized the American Economy.  In addition to the CEO arrival, Obama’s stimulus plan was pushed through the house and senate.  Geithner outlined his plan as to how this administration plans to distribute the remaining funds for the bank bailout.  A number of banks that will be receiving these funds vowed to suspend or halt home foreclosures for the time being.

The bankers came to Capitol Hill to plead their case to congress, desperate to convince congress that the money they were given-nearly $165 billion combined-has not been used to pay excessive bonuses.  They stated that all of their effort was being put forth to increase lending, and hope to return all of the tax payers’ money by 2012 or sooner.

Timothy Geithner was less exact with the specific amount of money needed to pick up the financial system and increase lending.  Details of Geithner’s plan were vague; however, Geithner did promise promised that more details will follow.

Obama seemed to have better success this week on Capitol Hill, as the House and Senate reached an agreement on his stimulus plan.

The effects of the activity on Capitol Hill this week could not come at a more crucial moment.  It was reported that 6.3 million Americans are on unemployment.  The stimulus plan is key, as part of these funds will increase and extend unemployment to those who qualify.

The biggest banks involved in the escalating foreclosure numbers have vowed to stop foreclosures until early March.  Some said they will wait to hear details from the Obama administration’s loan modification program, which is said to invest at least $50 billion more to prevent foreclosures.  The plan is set to be released in the upcoming week.

Many more of these busy weeks are in store for the government.  The administration is working tirelessly to curb the long term effects that are characterize this recession.  I’m not sure if I trust the bank CEOs, as I have seen no evidence of lending opening up.  I will await details of Geithner’s plan before passing judgment.  The stimulus plan was without a doubt the most promising thing to happen on Capitol Hill this week.