Expansion of the Obama Mortgage Plan & You

Some very good news was just announced last week having to do with President Obama's $75 billion mortgage relief plan. It has been expanded to cover second mortgages. By expanding it to cover second mortgages this opens the mortgage relief plan to millions of homeowners that are in trouble. Some of these homeowners will be directed to the Hope for Homeowners program.

This program was officially launched in April but these changes were needed because of the ongoing recession and the continued drop in home values. Also, there was a substantial amount of people who did not qualify for the original plan. This opens it up to people who really need it. Also it is good to change now since the program has just started. By making these changes quickly it shows that the administration is keeping an eye on the true goal of the mortgage relief plan.

What was realized pretty quickly was that about 50% of the homeowners at risk of foreclosure already have second mortgages. Most of these were not eligible for the original plan. If millions of homes went into foreclosure it would beat down our economy even more. It would put more pressure on banks and loan institutions that are already struggling. Taking on the longest recession in our history since the 1930s means being on the ball and making changes quickly.

With the new revised plan interest rates on second mortgages are being reduced to 1% on loans where payments cover interest and principal, and to 2% on second mortgages that are interest only. This will be subsidized by the federal government. By doing this the mortgage investor is in a better financial position and assumes less risk.

The mortgage relief plan helps to keep people in their homes and persuades investors not to foreclose on homeowners. If they do foreclose on homeowners with a second mortgage they will receive only three cents on the dollar for loans that are beyond 180 days delinquent. If the loans are less than 180 days delinquent they will receive between four and twelve cents on the dollar.

Another new idea that helps homeowners is that the loan service providers who are part of the plan are now required to modify the second loan if the original mortgage is being adjusted. This was a loophole that needed to be closed.

Part of the biggest problem of this mortgage crisis has been the cascading value of homes all across the country. Once the home became worth less than the mortgage some homeowners simply walked away. When this happens the banks owned the homes but have no income coming from them and they can't sell them for what they were worth even two years ago. Dropping home prices across the entire country has not happened since the Great Depression in the 1930s.

The Hope for Homeowners program was designed to help these people that now have homes that are worth less than their mortgage. Instead of just walking away from an underwater mortgage the program helps them to refinance their mortgage. Initially, the loan providers were reluctant to refinance the mortgage principal balance 10% below the original mortgage. This has been rectified. Congress has adjusted it to 93% of the homes original value and reduced the fees required for the change.