This page summarizes the foreclosure prevention program announced by the Obama administration on February 17, 2009.

Homeowner Affordability and Stability Plan

On February 17, President Barack Obama announced his plan to reduce foreclosures and stabilize the housing market, called the Homeowner Affordability and Stability Plan. As described by the White House, the plan will help seven to nine million homeowners restructure or refinance their mortgages to avoid foreclosure. The details of plan implementation will be announced by March 4.

Entitled the Homeowner Affordability and Stability Plan, this program has three main goals:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
2.  A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

 Components of the White House plan are:

• Four to five million homeowners whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac will be able to refinance at the lower interest rates currently available and thus reduce their monthly payments. These are homeowners who can pay their mortgages, but whose property values have fallen such that they do not have sufficient equity to qualify for refinancing otherwise.   
• Another three to four million homeowners at risk of foreclosure will be able to have their loans modified via a new $75 billion Homeowner Stability Initiative, funded out of the Troubled Asset Relief Program (TARP) passed by Congress in October 2008. The federal government will provide incentives to lower the monthly mortgage payment to no more than 31% of a borrower’s income with financial incentives to the lender and servicer to modify the mortgage and to the borrower for remaining current on the modified mortgage. Lenders are incentivized, not required, to participate. In approving the use of the second $350 billion in TARP funds by the new Administration, Congress made clear that some portion of the funds should be used to provide direct assistance to homeowners facing at rick of foreclosure. Only mortgages on owner-occupied homes can be modified and the borrower must have sufficient income to make the reduced payments.
• Fannie Mae and Freddie Mac will get an infusion of an additional $200 billion in financial support and be allowed to increase their portfolios so that they can continue to purchase mortgages. The Housing and Economic Recovery Act of 2008 passed last summer provided for these funds, so no new funding will be needed.
• The President will seek Congressional approval to allow judicial modifications of home mortgages in bankruptcy. A solution long sought by consumer and civil rights advocate, Presidential Candidate Obama supported bankruptcy reform as a foreclosure prevention measure.
• In addition, the plan requires coordination among Treasury, the Federal Deposit Insurance Corporation, the Federal Reserve and HUD to maximize the effectiveness of the plan, and provides improved flexibility for FHA programs that modify and refinance at-risk borrowers.

On a conference call briefing housing advocacy and industry representatives, White House staff asked for assistance in reaching out to as many at-risk homeowners as possible to urge them to take advantage of the new opportunities to save their homes.

Some critics of the plan said it did not go far enough and should mandate that lenders renegotiate loan. Others found fault with bailing out less than responsible borrowers with funds from taxpayers who did not take out risky loans.

The National Low Income Housing Coalition (NLIHC) issued a statement noting that while the plan did provide needed assistance for troubled homeowners, it does not address the problems of renters in foreclosed properties who in many states can be summarily evicted after foreclosure.  “Renters are the least blameworthy of all the victims of the foreclosure crisis,” said NLIHC President Sheila Crowley. “It is unconscionable that someone who has been a lease-abiding tenant, paying the rent on time, be evicted with little or no notice because the landlord has defaulted on the mortgage. It also does not make sense to get rid of a tenant who provides an income stream for the new owner and prevents a property from sitting vacant. An occupied house with a good tenant is far preferable to an unoccupied house for both the new owner and the surrounding neighborhood.”

Under the October 2008 legislation that created TARP, the Treasury Department is required to coordinate with federal entities, including FDIC, the Federal Reserve, the Federal Housing Finance Agency, and HUD, that are holding troubled assets to permit “bona fide tenants who are current on their rent to remain in their homes under the terms of the lease.” In addition, in the case of residential rental properties, Treasury is required to maintain federal, state, and local rental subsidies and protections, and ensure that loan modifications result in financially viable projects.

NLIHC urged “Treasury Secretary Geithner to use his authority to require all institutions that receive TARP funds at a minimum to honor the leases of existing tenants in properties they acquire through foreclosure. A great deal of harm to innocent families could be prevented if he acted now.” 

A copy of the statement can be found at http://www.nlihc.org/detail/article.cfm?article_id=5828&id=48

Click here to read an Executive Summary of the plan.

Click here to read the eight page Fact Sheet that provides all the details of the plan.

Click here to read Questions and Answers for Borrowers.

Click here to read how three Sample Cases of the plan would work for different borrowers.

We will continue to update this page with more information as the plan moves through Congress and what it could mean for NC housing counselors, lenders and borrowers.