President Barack Obama pledged $275 billion to a program that includes cutting mortgage payments for as many as 9 million struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures.

The plan includes $75 billion to reduce monthly payments for borrowers at risk of foreclosure and helps homeowners with loans owned or backed by Fannie Mae and Freddie Mac to refinance at lower rates.

"It will give millions of families resigned to financial ruin a chance to rebuild," Obama said Wednesday in Mesa, Ariz. "By bringing down the foreclosure rate, it will help to shore up housing prices for everyone."

The program signals that the Obama administration, which will release more details in two weeks, plans to take a more active stance to halt foreclosures than the Bush administration, which backed voluntary industry efforts.

Record foreclosures in the past year are swelling the glut of properties on the market, forcing down home values and undermining home builders' efforts to revive demand and lighten inventory by cutting prices.

JPMorgan Chase Chief Executive Officer Jamie Dimon said the plan will help the bank expand its modification of mortgages.

"The plan is good and strong, comprehensive and thoughtful," Dimon said. "I think it will be successful in modifying mortgages in a way that's good for homeowners."

The plan:

* Will use $75 billion, mostly from the $700 billion financial bailout fund, to help lower interest rates for as many as 4 million at-risk home owners. The government will share the burden with lenders, collectively reducing payments to 31 percent of a borrower's monthly income. Lenders also will be able to bring down payments by forgiving a portion of the principal owed, with the Treasury sharing in the costs.

"We think it is accurately aimed at homeowners at risk that are most likely to represent avoidable foreclosures, so it is likely to have a maximum impact where the dollar is committed," said Robert Davis, executive vice president of the American Bankers Association.

* Will help as many as 5 million home owners refinance loans owned or guaranteed by Fannie and Freddie so they can get better rates even if the value of their homes has fallen so low that they owe more than the standard 80 percent of that value.

* Will double the funding, through the Treasury Department, available for Fannie and Freddie to buy loans by purchasing as much as $200 billion of preferred stock in the companies. It also will increase the limit on the size of their retained mortgage portfolios by $50 billion, to $900 billion.

Banks accepting U.S. help must adopt loan modification plans, the government said.

Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 annually for three years when the borrower stays current, the government said.

Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan. The cash will be applied to reducing the principal balance of the loan, according to a White House fact sheet.

Mortgage servicers will get $500 and loan holders $1,500 to modify loans as an incentive for the industry to seek out borrowers at risk of falling behind on their payments.

A family with a conforming Fannie Mae or Freddie Mac mortgage will save an average of $2,300 annually under the program.

HOUSING PLAN Q&A

Details on the Obama administration's housing plan released by the U.S. Treasury:

* What help is available for borrowers who stay current on their mortgage payments but have seen their homes' value decrease?

Under the plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30- or 15-year, fixed-rate loan. Fannie Mae and Freddie Mac will allow the refinancing of mortgages that they hold in their portfolios.

* I owe more than my property is worth. Do I still qualify to refinance?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105 percent of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less, you may qualify. The current value of your property will be determined after you apply to refinance.

* How do I know if I am eligible?

The criteria will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

* Will refinancing lower my payments?

The objective of the plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.

* Will refinancing reduce the amount that I owe on my loan?

No. The objective is to help borrowers refinance into safer, more affordable fixed- rate loans.

* When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4.

* What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 million to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

* Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default.

* How do I know if I qualify for a payment reduction?

In general, you may qualify for a mortgage modification if you occupy your house as your primary residence; your monthly mortgage payment is greater than 31 percent of your monthly gross income; and your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.

* How do I apply for a modification under the Homeowner Affordability and Stability Plan?

You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor.

* My loan is scheduled for foreclosure soon. What should I do?

Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification to allow sufficient time to evaluate the borrower's eligibility.

Back to Top