2% for some homeowners
MORTGAGES | Deal could allow 30,000 area homeowners to keep properties
Homeowners at risk of foreclosure will be able to have their mortgage interest rate reduced to as low as 2 percent and payments spread over as much as 40 years, according to more details of the Obama administration's $75 billion foreclosure prevention plan, released Wednesday.
The plan focuses on homeowners "at risk," such as those under water on their mortgages, limited to those who owe up to 5 percent more than their home's current value. It also targets those suffering serious hardships, decreases in income, increases in expenses, payment shock, and high combined mortgage debt compared to income, the administration said Wednesday.
(AP)
The plan, which includes financial incentives for lenders and borrowers, has two parts. One would enable 4 million to 5 million homeowners with good payment histories, whose mortgages are with Fannie Mae or Freddie Mac, to refinance into lower, fixed-rate mortgages. The other would enable 3 million to 4 million borrowers to modify their loans to make them more affordable by reducing their payments to no more than 31 percent of their income, including lowering interest rates to as low as 2 percent.
Mortgages must have been originated on or before Jan. 1, 2009, and lenders will be able to offer modifications under the program through the end of 2012, the administration said.
The program excludes investor-owned properties and vacant or condemned properties.
Only owner-occupied homes qualify, including single family homes and properties with two-to-four units.
Borrowers will be required to fully document income and sign an affidavit of financial hardship.
When modification doesn't work, the plan provides incentives for loan servicers to take alternatives to foreclosures, like short sales or taking deeds in lieu of foreclosure. Borrowers will be eligible for a payment of $1,500 in relocation expenses in order to bring about short sales.
As many as 30,000 Chicago area homeowners could keep their homes through the plan, said Michael van Zalingen, director of Homeownership Services with the Neighborhood Housing Services of Chicago.
"Currently only as little as 6,000 Chicagoland homeowners behind on their mortgage have received a sustainable loan modification," he said.
The plan is designed to curb foreclosures that have ravaged the economy and devastated communities.
"This is not going to save every person's home," Press Secretary Robert Gibbs said during a briefing. The plan offers help "for those who have played by the rules."
For more information, visit FinancialStability.gov.
Contributing: Bloomberg News, AP