obama economic crisis plan

Obama’s New Plans to Help Homeowners

The Obama Administration recently announced new details to bring relief to homeowners under the Making Home Affordable program. On April 28, 2009, two new programs were unveiled. The first one is called the Second Lien Program which is designed to help homeowners achieve affordability. The second program involves the integration of the FHA Hope for Homeowners plan into the Making Home Affordable Plan.

There are significant challenges to modifying loans for homeowners with first and second mortgages, especially in cases where the first and second mortgages involve different lenders. It is estimated by the U.S. Treasury that up to 50 percent of homeowners at-risk of being foreclosed involve homeowners with Second Mortgages on their homes. Hence, the Second Lien Program announced last week is estimated to help millions of homeowners.

The Second Lien Program
The Second Lien Program is envisioned to work together with the loan modifications offered under the MHA program. When a Home Affordable Modification is initiated on a first mortgage, lenders participating in the Second Lien Program will automatically reduce payments on the Second mortgage according to some standards set by the U.S. Treasury. This program also makes it possible for homeowners to buy out the second mortgage with a lump sum payment under a formula also set by the U.S. Treasury. This gives homeowners the chance to extinguish second mortgages when appropriate.

Hope for Homeowners/Making Home Affordable
The other announcement by the U.S. Treasury involves steps to incorporate the FHA’s Hope for Homeowners into the MHA program. Hope for Homeowners require the lender to accept a payoff below the current market value of the home, allowing the homeowner to refinance into a new FHA guaranteed loan. Refinancing into a new loan below the home’s market value gives the homeowner equity in the home thus resulting in a better financial position for borrowers who qualify.

Under the program changes announced last week, when lenders evaluate a homeowner for an affordable home modification, lenders will be required to determine the homeowner’s eligibility for a Hope for Homeowners refinancing. Where the homeowner qualifies, the lender must offer this option to the homeowner. To encourage lenders to join the program, they will be given incentives similar to the success payments in the MHA program.

To better illustrate the second lien program, the U.S. Treasury came up with two case examples.

The first example involved Family A, which took out a 30-year closed-end second mortgage with a balance of $45,000 and an interest rate of 8.6%. Today, the Family A has an unpaid balance of almost $44,000 on their second mortgage. Under the second lien program, the interest rate on Family A’s second mortgage will be reduced to 1% for the 5 years reducing their annual payments by over $2,300. After those 5 years, Family A’s mortgage payment will rise again but to a more moderate level.

The second example involves Family B, which took out an interest only second mortgage with a balance of $60,000 with an interest rate of 4.4% and a term of 15 years. Today, Family B has $60,000 remaining on their interest only second mortgage because none of the principal was paid down. Under the second lien program, the interest rate on Family B’s interest only second mortgage will be reduced to 2% for 5 years reducing their annual payments by $1,440. after those 5 years, Family B’s mortgage payment will adjust up and the mortgage will amortize again over a certain term.

Treasury Secretary Tim Geithner said that:“With these latest program details, we’re opportunities for borrowers to make their homes more affordable under the administrations housing plan.”

These programs are part of the ongoing effort of the Obama administration to solve the current economic crisis. Programs, guidelines and participants in these programs are likewise being constantly revised. Thus, homeowners also need to be vigilant and get up to date information on all their options as available programs are also constantly changing and updating.

About the Author

August Blass is CEO and president of National Loan Auditors, a company providing quality control, pre-close and post-close auditing, risk assessment consulting and fraud prevention to the mortgage and banking industries. He is responsible for setting the strategy and vision for NLA while achieving the goals and objectives of the company.

Blass is a lending industry executive with proven experience in building national wholesale production, marketing, sales training and product development. Prior to starting NLA, he served as CEO and president of Nexloan, where he was responsible for the complete administration of wholesale and retail loan operations. In 1993, he founded LION INC, where he led product development, strategic positioning, strategic accounts, national lenders sales and implementation of national broker sales initiatives.

In 1997, Blass authored Internet Strategies for the Mortgage Banking Industry, published by Faulkner & Gray and is a member of the Association of Certified Fraud Examiners (ACFE).

August Blass’s Specialties:

As a member of ACFE and with over 20 years experience in originating, secondary and securities, we bring the expereience necessary to provide mortgage industry with premier audit and compliance solutions. We offer a B2B model and we are preparting to launch our B2C model.

Are you glad Obama’s plan is probably not going to get passed?

Because on one hand, it means that thousands of americans will not get free healthcare, but on the other hand it saves the government trillions of dollars and helps with the economic crisis because we won’t be spending trillions more.

What do you think?

With or without Obama’s plan, the millions of uninsured Americans still get free healthcare and these are paid for by taxpayers. Consider these facts:
Of those admitted to public hospitals, i) 1/3 do not have medicaid and are not paying patients, ii) another 1/3 have insufficient medicaid or coverage to fully pay for their bills.
Therefore, the indirect costs of all these are being paid off through budgets and subsidies either through federal or state levels. Public hospitals do not deny treatment, by law, and for undocumented visitors, first priority is still to treat, and the tab has to be paid off by some one or some agencies.

The costs of existing healthcare systems have been overblown that healthcare costs made up 16.7% of USA’s GDP (much higher than most advanced countries) and yet, in comparison the quality of healthcare services is lower than those advanced countries.

In light of many studies and reports on the state of healthcare costs and standards in the USA, reform has been strongly recommended to vastly improve on healthcare accessibility, healthcare quality, and healthcare sustainability, and on trying to control the spiralling costs.

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