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Who is Obama’s Housing Plan Really Helping?

For our first entry in Wednesday’s Washington Weekly, let’s discuss an issue that has been a topic of conversation in almost every American home-the housing crisis.  Millions of Americans are feeling the effects of the subprime mortgage meltdown.  Many have lost their homes or are currently in danger of meeting that same fate, as they cannot afford mortgages that at one time appeared affordable.  No matter where you want to point the finger-at the lenders, at the borrowers, at the brokers-the next step in this discussion needs to focus on the solution.

So what is President Obama’s proposed solution?  How does our new commander-in-chief propose that we dig ourselves out of this crisis?  Obama’s “Making Home Affordable” plan aims to work with lenders to modify loan terms and to create more affordable fixed-rate loans.  Approximately 4 million Americans will benefit from the modified terms, while 5 million Americans will be granted the more affordable fixed-rate loans.  The 9 million Americans who will reap the plan’s benefits must fall in the category of borrowers who owe up to 5 percent more than their home’s current value.  If you fall into this category, you must submit your most recent tax return, two pay stubs, and an “affidavit of financial hardship.”  The conditions of the housing plan dictate that borrowers will only be allowed to have their loans modified once; furthermore, the loans needs to have been granted on or before January 1, 2009, and must either be backed by Fannie Mae or Freddy Mac.

So how is Washington responding to the fact that the “Making Home Affordable” leaves out the rest of homeowners who owe more than 5 percent of their home’s current value?

Secretary Tim Geithner commented:

“Two weeks ago, the President laid out a clear path forward to helping up to nine million families restructure or refinance their mortgages to a payment that is affordable now and into the future.  Today, we are providing servicers with the details they need to begin helping eligible borrowers.”

This is only the beginning of a plan that will, over time, trickle down to help other Americans caught in the midst of the subprime mortgage crisis.  A crisis of this size, with this much money involved, cannot be solved overnight.  For more information regarding the details of President Obama’s housing plan, visit www.financialstability.gov.

Obama’s Housing Plan – Stopping the Foreclosure rate

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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