The White House announced today that it will use $75 billion that has already been authorized by Congress to help 'subsidize' mortgage payments for millions of people who find themselves unable to make mortgage payments.Most of this money will go to reward banks for restructuring the loans of individuals having trouble, but some of the money will also go to homeowners who are staying current on their mortgage bills. Fannie Mae and Freddie mac will also get additional funding to acquire more loans.
“This is not a silver bullet, although I don’t think one exists,” says Mark Zandi, chief economist at Moody’s Economy.com. “This should be helpful to stem but not stop the continuing rise in foreclosures.”
Zandi estimates that $500 billion in mortgages are 'underwater' That means that the amount owed on the property is higher than the property is actually worth. Properties like that are easier to walk away from, because the homeowner realizes they are already way behind.
“Say someone bought a house for $400,000, and it’s now worth $200,000. They are just walking away from the mortgage,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. “There is no incentive to keep making payments on houses that are continuing to decline.”
The new Homeowner Affordability and Stability Plan from the White House is designed to help responsible homeowners who are making payments on time, but cannot get refinancing because of lost home value.
In one part of the new plan, the White House wants banks to take the first step, reducing homeowners' payments to no more than 38% of their income. The government would then subsidize the monthly payment down to 31%. A fact sheet released today indicated that a family with a $200,000 income on a 30 year fixed mortgage at 6.5 percent would save about $191 a month.
We'll have to wait and see if -- and how quickly -- these new programs actually help alleviate the increasing mortgage crisis for the average homeowner. Stay tuned!
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