Obama's $75B plan should prevent some local foreclosures|Westchester Foreclosures|Bailout Plan

Some Guidlines in the new Obama Rescue plan could save many local homes.

MESA, Ariz. – President Barack Obama threw a $75 billion lifeline to millions of Americans on the brink of foreclosure yesterday, declaring an urgent need for drastic action – not only to save their homes, but also to keep the housing crisis “from wreaking even greater havoc” on the broader national economy.

The lending plan, $25 billion bigger than the administration had been suggesting, is aimed at preventing as many as 9 million homeowners from being evicted and stabilizing housing markets that are at the center of the ever-worsening U.S. recession.

Government support pledged to mortgage giants Fannie Mae and Freddie Mac is being doubled, as well, to $400 billion, as part of an effort to encourage them to refinance loans that are “under water” – those in which homes’ market values have sunk below the amount the owners still owe.

“All of us are paying a price for this home mortgage crisis, and all of us will pay an even steeper price if we allow this crisis to continue to deepen,” Obama said.

The administration is loosening refinancing restrictions for many borrowers and providing incentives for lenders in hopes that the two sides will work together to modify loans. But no one is required to participate. The biggest players in the mortgage industry temporarily had halted foreclosures in advance of Obama’s plan.

Complicating matters, investors in complex mortgage-linked securities, who make money based on interest payments, could still balk, especially those who hold second mortgages or home equity loans. Their approval would be needed to prevent many foreclosures.

The goal is to lower many endangered homeowners’ payments to no more than 31 percent of their income. But that depends on a high degree of cooperation by lenders who have been increasingly wary of new lending as the crisis has deepened.

Greg Rand, managing partner at Prudential Rand Realty, knows of at least one man who will be able to keep his condo in Port Chester because of the Obama program. He said the man has $230,000 left on a mortgage he got four years ago. He also has $40,000 left on a home equity loan with an adjustable interest rate that has exploded to 11 percent, Rand said.That means the man has $270,000 in debt, but the condo is worth only about $260,000, Rand said.

Since the man had no equity in the condo, he could not refinance the loans. But under the Obama program, he will likely be able to get a Freddie Mac or Fannie Mae loan and save $400 month, he said.

“If Freddie Mac will allow us to give him a 4.5 percent fixed rate, he’ll be all right,” Rand said. “That’s the part of the plan I like. He was literally considering putting his condo on the market in the next few weeks. Now he’s going to be able to stay there.”

Stephanie Rojas, the housing director at the Rockland Housing Action Coalition in Nanuet, said she likes the president’s plan.

“I’m a little cynical at this point, but I feel this is positive,” she said. “It’s very ambitious, and it’s very broad.”

Mark Boyland, associate broker and partner for Keller Williams NY Realty in White Plains, said he believes the plan “is certainly a step in the right direction” and will prevent some foreclosures because lenders will adjust interest rates for struggling borrowers. Other folks are in such dire straits that the plan will not help, he said.

“For many people, you could cut their mortgage payments in half and it wouldn’t make much of a difference,” he said. “They’ve run out of money, they’ve lost their jobs, they’ve had medical bills, they had bad investments and they can’t make a payment, period.”

He added: “But some people are on the fringe, who, yes, by cutting the mortgage rate by 1 (percent) or 2 percent, that will make the difference.”

There were 7,000 foreclosure proceedings filed in Westchester County from 2005 through 2008, with 2,200 filed last year, up less than 2 percent from 2007. The figure was artificially suppressed by a state law that delayed lenders from immediately going to court to foreclose; before it went into effect in September, the year-over-year increase was up by 33.6 percent.

Rockland foreclosures were up 16.7 percent through October year over year, while Putnam’s actually decreased in that time by 9.43 percent.

Some bankers in the Lower Hudson Valley said the region is far less affected by foreclosure than other areas of the state and the nation where subprime lending was more pronounced.

The bankers also said they felt relieved that they had turned down the opportunity to avail themselves of emergency federal capital, noting that banks that did so will be obligated to participate in the foreclosure plan unveiled yesterday.

The plan represents a historic intrusion by government into banking, they said.

“We’re all going to have to become students of government acronyms,” said Stephen G. Dormer, executive vice president for community lending and strategic planning at Provident Bank in Montebello.

The portion of the plan that allows certain borrowers to refinance their mortgages on houses that have depreciated in value functions more as a stimulus, he said.

Drew Kessler, director of sales at Rand Mortgage in New City, said previous action by the federal government was aimed at fixing broken institutions. Yesterday’s announcement outlines plans aimed more at consumers, he said.

“This will make a lot of people feel more comfortable in the situations they’re in,” Kessler said. “Only time will tell if this is effective. It has to be implemented before we know.”

Obama said he backs legislation in Congress to allow bankruptcy judges to modify the terms of primary home loans.

Nationally, Moody’s www.Economy.com says that of the nearly 52 million U.S. homeowners with mortgages, about 13.8 million, or nearly 27 percent, owe more than their homes are worth after many months of declining prices.

In theory, homeowners facing foreclosure or borrowers owing more on their homes than their mortgages are worth would have more opportunities to refinance their loans so that they have lower monthly payments. Lenders would voluntarily participate in the government programs.

The $75 billion Homeowner Stability Initiative would provide incentives to mortgage lenders to cut monthly payments in an effort to persuade them to help up to 4 million borrowers on the verge of foreclosure. The goal: cut monthly mortgage payments to sustainable levels, using money from the $700 billion financial industry bailout passed by Congress in the fall.

Another part would specifically help people with dwellings whose market value has sunk below the principal still owed on the mortgages. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program would help 4 million to 5 million families do just that – if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac.

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