The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
The key components of the Homeowner Affordability and Stability Plan are:
1. Affordability
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance
· Reducing Monthly Payments
o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Helping Hard-Pressed Homeowners Stay in their Homes
No Aid for Speculators This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
Protecting Neighborhoods
Providing Support for Responsible Homeowners
Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
A Shared Effort to Reduce Monthly Payments
“Pay for Success” Incentives to Servicers
Incentives to Help Borrowers Stay Current
Reaching Borrowers Early
Home Price Decline Reserve Payments
Institute Clear and Consistent Guidelines for Loan Modifications
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
Ensuring Strength and Security of the Mortgage Market
Provide Forward-Looking Confidence
Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
Promoting Stability and Liquidity In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
Right, bailing out Fannie and Freddie or the evil-bankers wouldn’t be popular nowadays but throwing a few $100s billions to save homeowners, communities, neighborhoods etc that’s all right, as they say in behavioral finance 101, it’s all in the framing.
The “affordability” piece feels like a way to bail out Fannie and Freddie’s cratering portfolio under the guise of protecting homeowners, home values, apple pie, etc. I might be missing something, but there is no principal reduction piece to the refi program, so though the payments may be lower, LTVs are likely to ratchet upward, and without much excess spread in compensation as the interest rate must be forced down to fit the borrower’s budget.
It also shows how, for as much as it was demonized, the private-label subprime market was of great use to the GSEs, as it took exactly these types of loans off their books and rewrote them at a wider spread to reflect the risk. Now that the market has vanished, GSEs must “wear” this collateral and are much too levered to do so. It seems like the plan is to use subprime-type LTVs (and credit scores? This is not mentioned in the release) but write them at conforming rates. It stems the delinquency tide, but risky, risky.
The $75 billion “stability” piece with it’s incentive fees and upfront payments are a nice way to recapitalize servicers, who must be getting crushed having to front advancements and deal with carrying costs on a delinquency book that must far exceed their worst scenarios. Not a bad idea. I’m surprised more hasn’t been written about the vulnerability servicers are facing in this climate given how important they are to a functioning mortgage market. But I guess we can only handle so many apocalyptic scenarios at a time.
And the “confidence” piece? Just mo’ money, I guess. Again fits in with this as a GSE bailout packaged as helping Joe Lunchbucket. When do we ask for bonus clawbacks from Frank Raines and his C-level cronies and boardmembers? I’d like to see that money thrown into this $400b pot for fairness sake. And any pols who took lobbying money from these groups should remit that back into the program as well.