President Obama has announced his new initiative to provide relief for homeowners caught in the mortgage crisis. Summaries have been posted by the WSJ and the Washington Post. What is clear is that President Obama is attempting to walk a thin line between arresting the foreclosure spiral while trying not to upset those outraged by bailout abuses. The focal point of the Homeowners Affordability and Stability Act (HASP) is to help the homeowner who has been trying to meet payments but cannot qualify for refinancing because their home values have been shattered by falling housing prices. What the Act does NOT do is address what will be done for those already behind in their payments or who have already entered the final phase of the foreclosure process. It will be interesting to see what happens when the current foreclosure moratorium announced by several lenders expires next month.
Clearly, the mortgage relief is NOT aimed at “the unscrupulous or irresponsible speculators who took risky bets” or “dishonest lenders.” However, in the text of President Obama’s speech, he makes it clear that the Administration will continue to “support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value — as long as borrowers pay their debts under a court-ordered plan. That’s the rule fo rinvestors who own two, three, and four homes. It should be the rule for ordinary homeowners too, as an alternative to foreclosure.” In other words, the newly announced Act will not provide any direct relief for homeowners or investors facing bankruptcy, but President Obama has send a strong signal that his Administration supports the authority of Bankruptcy Judges to reduce mortgage debt by court order. The Lending industry will undoubtedly see this as incentive to continue to negotiate loan modifications.
Yogi Berra said it’s tough to make predictions, especially about the future. The Plan announced today will be followed up by the release of guidelines which will go into effect on March 4th that will affect the entire mortgage industry. As the President said, “Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines.” The target is to get lenders to reduce interest rates and make other adjustments so that the mortgage payments will be no more than 31% of a borrower’s income. If you’re a mortgage broker, you’re going to be very, very busy. If you are a Lender, you will be looking closely at how you can conform your program to the new guidelines. If you are a homeowner who is behind in payments and trying to negotiate a loan modification, you may find a more cooperative attitude.
I will post updates as the picture becomes clearer. One tip from the Washington Post — if you are already involved in a loan mod workout, notify your lender or loan mod representative that you want to be considered for eligibility under the terms of the Homeowner Affordability and Stability Plan. If nothing else, this should buy you some time while everyone attempts to sort it out and figure out what it is.