President Obama Opens The Door To Helping Homeowners
Wednesday, March 04, 2009SUSIE GHARIB: Let the workouts begin. That's the message from the Obama administration today as it explained the nuts and bolts of its $75 billion plan to stop foreclosures and help struggling homeowners. As Stephanie Dhue reports, lenders will have to rewrite mortgages to fit the new rules.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The sweeping loan modification program is meant to reduce foreclosures, helping stabilize the housing market and the broader economy. Housing and Urban Development Secretary Shaun Donovan says the key is to get borrowers into a sustainable mortgage.
SHAUN DONOVAN, HUD SECRETARY: What we are trying to do is establish standards in the industry to get an agreement across servicers, lenders, families that here's what a reasonable payment standard is in the longer run, 31 percent of your income.
DHUE: To be eligible, the mortgage had to made on or before January 1, 2009. Borrowers must live in the home and have a mortgage amount less than $730,000. Borrowers must prove they can't pay and have no cash or other liquid assets, excluding retirement accounts. Servicers will be working directly with families and the government will oversee the process.
DONOVAN: We are going to be auditing and looking very carefully at what the servicers are doing. They are going to be required to report extensively on the modifications that they are doing.
DHUE: Housing activist Bruce Marks is concerned the loan modifications may not be sustainable, since the interest rates readjust after five years. Adjustable mortgages are what got many homeowners into trouble in the first place.
BRUCE MARKS, FOUNDER & CEO, NEIGHBORHOOD ASSISTANCE CORP. OF AMERICA: These are not going to reset to the same rates that they reset to before, but they are still going to cause -- result in hundreds of dollars more every month. Where are homeowners going to find that?
DHUE: Investors will also feel the squeeze. Standard & Poor's Michael Thompson says modifications that lower interest rates and increase the life of the loan hit investors in mortgage-backed securities.
MICHAEL THOMPSON, CREDIT RISK GROUP, STANDARD & POOR'S: The fixed income retiree who's living down in Boca Raton, who basically realizes that now their income stream is going to be less and unfortunately, they are going to be wedded to that income stream longer.
DHUE: Lenders and servicers can begin accepting applications for loans modifications today. Treasury officials urged borrowers to be patient as they expect a flood of calls from struggling homeowners. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
