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Due to the downward spiral of the U.S. housing market and economy, the U.S. Government has been trying hard to create programs that will stimulate the economy and stop home foreclosures. The few attempts made by the Government have had limited or no significant results. However, some of the existing programs already in place have been successful. A new plan has been recently announced by president Barrack Obama outlining details for the new stimulus package and housing rescue program.
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FHA
The Federal Housing Administration, generally known as "FHA", is the largest government insurer of mortgages in the world, insuring over 35 million properties since its inception in 1934. A part of the United States Department of Housing and Urban Development (HUD), FHA provides mortgage insurance on single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the United States and its territories.
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Government Bailout
The federal government committed an additional $800 billion to two new loan programs on November 25th 2008, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion. Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will cost taxpayers. The final cost won't be known for many years.
Most of the money is going into loans or loan guarantees, asset purchases or stock investments on which the government could see some return.
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FHA Streamline
FHA has permitted streamline refinances on insured mortgages since the early 1980's. The "streamline" refers only to the amount of documentation and underwriting that needs to be performed by the lender, and does not mean that there are no costs involved in the transaction.
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IndyMac Model
The federal government’s response to the financial crisis has been criticized as focusing too much on helping out banks while neglecting the troubled borrowers facing foreclosure.
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Reverse Mortgages
The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables homeowners to withdraw some of the equity in their home. With 401k and retirement assets of the whole recent generation being disseminated or decreased by the current crisis, HECM is looking more and more like an alternative to financing retirement.
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What are the broad outlines of the plan?
A refinancing option for those who are making payments but are paying high interest rates and would otherwise not be able to refinance, either because they do not have enough equity or because their houses are worth less than they borrowed.
$75 billion in assistance for people at risk of foreclosure through incentives to lenders to alter the terms of loans.
Assurance that there is credit available for mortgages through $200 billion in backing to mortgage finance companies Fannie Mae and Freddie Mac.
How much will this cost?
Approximately $275 billion.
How many people will be helped?
The government says 7 million to 9 million homeowners. However, the following quote was taken directly from Barrack Obama, stating which homeowners would not be helped:
”It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsible, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. In short, this plan will not save every home”.
Who will NOT be helped by the new Government housing plan?
According to Wilbur Ross (CNBC, February 26, 2009):
"The original Obama plan to stabilize mortgages effectively left out the $4 trillion of loans, mostly sub-prime and ALT-A, that are in private securitizations rather than backed by Federal agencies. Of these borrowers, one million are already undergoing foreclosure and two million more have missed at least two monthly payments."
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