Details Of Housing Rescue Plan Revealed

Emily Cyr

11 months ago

WASHINGTON (USA TODAY) -- The Obama administration on Wednesday outlined key details of a $75 billion housing rescue plan expected to help as many as 9 million homeowners rework mortgages into more affordable monthly payments.

The plan was announced Feb. 18. Wednesday's details show who would qualify and how the help would be provided to homeowners who want to refinance mortgages or who are unable to afford their current payments.

"It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets," Treasury Secretary Tim Geithner said.

MORE: Details at Treasury website

Among the details:

Loan Refinancing. Up to 5 million homeowners with a solid payment history on mortgages held or owned by Freddie Mac and Fannie Mae will be eligible to refinance into more affordable terms.

Normally, these borrowers would have been unable to refinance because heir homes have lost value, pushing their current loan-to-value ratios above 80%. The program will end in 2010.

Loan Modifications. Lenders and other servicers can immediately begin making modifications that could help up to 4 million at-risk homeowners stay in their properties.

To be eligible, homeowners must have loans that originated on or before Jan. 1, 2009. Eligible are first-lien loans on owner-occupied properties with unpaid principal balances up to $729,750. Higher limits will be allowed for owner-occupied properties with two to four units.

All borrowers must document income, which includes providing information such as two most recent pay stubs and an affidavit of financial hardship.

The program will run until Dec. 31, 2012. Incentives also are provided to get lenders to modify mortgages if a borrower isn't late on payments but is at risk of default.

Lenders and other servicers. Lenders will be required to use a formula -- basically, a net value test -- on each loan that is 60 days past due or delinquent. The test basically requires servicers to do the modification if the net present value of cash flows with a modification is greater than without a reworking.

Servicers also must follow an established process to reduce the monthly payment to no more than 31% of the borrowers' gross monthly income. In order to do that, lenders will first reduce the interest rate on the loan and then extend the term of the loan to up to 40 years.

Servicers will get financial incentives, such as an up-front fee of $1,000 per modification, to encourage participation.

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