President Obama today unveiled the Homeowner Affordability and Stability Plan, which is expected tp provide assistance to as many as 9 million homeowners, with a focus on significantly reducing the volume of foreclosures that is dragging down real estate values virtualy everywhere.

Their are three main parts to the Plan, and it only applies to primary residences. Also note that the loans that are referred to cannot exceed Freddie Mac/Fannie Mae conforming loan limits. This could be a problem in many parts of California, in particular. 

The first part of the Plan addresses homeowners who still have equity in their homes, but because of reduced values, don't have sufficient equity (20 percent) needed to refinance.  Under the new proposals, homeowners who have conforming loans owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity left in the house. The U.S. Treasury Dept. estimates that this may help up to 5 million homeowners.

The second part of the Plan targets homeowners who are “upside down” on their mortgages, including those who are current with their mortgages. At a cost of $75 billion, their mortgages will be reduced to monthly payments that do not exceed a 38 percent debt-to-income ratio, with the costs of doing so borne by the lender. The government and lender then would split the costs of further reducing the monthly payments until they were at a 31 percent debt-to income ratio. It is unclear how this will be enforced or if it will be voluntary on the part of lenders/servicers but they will receive up to $1,500 for every eligible modification meeting the initiative’s guidelines that are yet to be published, but scheduled to be released by March 4. The Administration will also work with federal agencies and banking regulators to develop loan modification guidelines that can be implemented across the entire mortgage market. All financial institutions receiving Financial Stability Plan assistance will be required to implement these guidelines. The government estimates that this will benefit up to 4 million homeowners.

The final part of the Plan is designed to support low mortgage rates by the Treasury doubling its investment in Fannie Mae and Freddie Mac to $200 billion in each. It will also continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities with the aim of promoting stability and liquidity in the marketplace.  The Obama Administration will also work closely with Fannie Mae and Freddie Mac to support state housing finance agencies, such as CalHFA

Most of these provisions should be able to be implemented fairly quickly although there are still many details to be clarified and questions that will be asked and answered. Regardless of that, this is obviously a major step in the right direction towards stemming the rising tide of foreclosures across the nation.