Housing plan aimed at gaps

The Baltimore Sun

WASHINGTON - The administration's plan for a housing rescue aids two groups of homeowners largely left out of previous efforts but will deny benefits to those who have been greedy or unwise, according to details released yesterday.

President Barack Obama's plan would greatly expand mortgage relief to those who have not missed payments and those whose homes are worth less than the mortgage.

What the program will not do, officials insisted, is reward the unwise or the greedy. Nor will it provide much help to those in the highest-priced areas, though it does reinstate last year's higher loan limits for refinanced or modified mortgages to $729,750 in the most expensive areas, such as Southern California.

"The plan is not intended to prevent every foreclosure or help every homeowner," said a senior Treasury official who briefed reporters on condition of anonymity. "It is targeted at responsible homeowners. It will do nothing for speculators or flippers."

Lenders said reinstating higher caps for eligible loans would help certain borrowers whose mortgages were purchased or backed by Fannie Mae and Freddie Mac. Those quasi-government financing giants could deal only with loans up to certain limits, which vary by area according to median home prices.

The higher cap had expired at the end of December, reducing eligible loans to $625,500 in more affluent regions. The higher limits the Obama stimulus plan reinstated last month expire at the end of this year.

"Basically, the invitation to the refinancing party has just been extended to a lot of people in Southern California," said Greg McBride, senior financial analyst at Bankrate.com.

It remains to be seen whether the program will fulfill Obama's broader hopes of helping 7 million to 9 million Americans get new mortgages and stem the tide of foreclosures that continue to erode the housing market.

At heart, the housing rescue plan remains voluntary for lenders, though any financial institution receiving government capital going forward will be required to take part.

The idea is not to prevent all foreclosures but to curb those the government deems "unnecessary" - loans to responsible borrowers doing their best to keep their homes in rough economic times. In most cases, officials said, avoiding foreclosure not only helps families but recoups more of a lender's investment.

"This plan will help make home ownership more affordable for 9 million American families and, in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing and Urban Affairs Secretary Shaun Donovan.

The administration has dubbed the plan the "Making Homes Affordable" initiative. It has two main parts. One is aimed at prudent but "underwater" homeowners who would like to refinance into a lower rate, and the other at borrowers facing financial hardship who are seeking a way to lower their monthly mortgage payments.

Both programs are limited to borrowers who live in their homes, owe no more than $729,750 and fully document their incomes.

The programs are effective immediately, though it could take some time for lenders and servicers to implement them.

"There are lots of borrowers who are significantly under water in California [and other expensive areas] who will be able to get into a sustainable mortgages under the program," said the senior White House official.

Details of the eligibility requirements for both programs has been posted on the government's economic recovery Web site: www.financialstability.gov.

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