The recent housing slump has hurt everyone. Interest rates went up, making it very hard for people to make their monthly payments. The the banks started to foreclose on these houses and suddenly the market was glutted with houses that no one could buy. This had the unfortunate effect of making the property values go down. When the housing values went down, it became almost impossible for many people to refinance. The mortgage holder must have 20% equity in the house to be able to qualify for refinancing, however when the house lost its value the result was that the equity was suddenly gone.
President Obama’s plan is an effort to to help the struggling homeowner who has so far been able to make the monthly payment, but do to circumstances beyond their control would soon face the lost of their home.
The two major mortgage holders Fannie Mae and Freddie Mac, will be held to using guidelines set in effect by the government, concerning loans they either own or guarantee. This plan offers a reward to the companies who work within the guidelines and help homeowners refinance their houses. The Government will help differ the cost of the extra paper work by offering the servicer a fee of $1000 for each eligible loan modification. With an other fee of $1000 each year up to 3 years for successful loan modification.
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