New $8,000 Credit for First Time Home Buyers

Larry O. Doss Thursday, February 26, 2009

Obama: Aid 9 million homeowners Wide-ranging $75 billion plan will use government money to subsidize rates and insure servicers against falling home prices.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: February 18, 2009: 10:05 AM ET

NEW YORK (CNNMoney.com) -- President Obama is
unveiling a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments. The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.
Obama, meanwhile, will make it easier homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who’ve already stopped paying.

The program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors. "In the end, all of us are paying a price for this home mortgage crisis," Obama was expected to say in a speech Wednesday. "And all of us will pay an even steeper price if we allow this crisis to deepen -- a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to 2007 Cable News Network LP, LLP.
arrest this downward spiral, every American will benefit."

The Obama plan calls for:
�� Helping borrowers who owe more than 80% of their home’s value to refinance and reduce their monthly
payments.

�� Creating a $75 billion homeowner stability initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower’s income.

�� Providing multiple incentives to servicers to modify loans and to proactively help at-risk borrowers while they are still current in their payments.

�� Creating a $10 billion fund to protect investors and servicers against further home price declines.

�� Requiring all financial institutions receiving government funds to participate in a standardized loan modification program, while seeking to have all federal agencies that own or guarantee loans also apply the guidelines.

�� Allowing judges to modify mortgages during bankruptcy, a measure the financial industry has strongly opposed.

�� Providing more Treasury Department backing of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and expanding the number of mortgages the agencies back.

First Published: February 18, 2009: 9:23 AM ET

Find this article at:
http://money.cnn.com/2009/02/18/news/economy/obama_foreclosure/index.htm?postversion=2009021810

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