Housing recovery intact despite drop in new home sales
WASHINGTON New U.S. single-family home sales tumbled from near a 9-1/2-year high in April, but the housing recovery likely remains intact amid a tightening labor market.
The Obama administration's housing rescue plan unveiled on Wednesday commits up to $275 billion in funds to help reduce mortgage payments for up to 9 million families and arrest the devastating fall in U.S. home prices.
Following are some elements of the plan:
* $50 billion to modify mortgages will come from the $700 billion financial bailout fund approved by Congress last year.
* Up to $25 billion in direct costs to finance firms Fannie Mae and Freddie Mac to modify mortgages.
* Up to $200 billion from the U.S. Treasury to increase capital for Fannie and Freddie if necessary, authorized under a housing bill passed last year. Fannie and Freddie would increase their mortgage portfolios by $50 billion each.
REFINANCING FOR HOMEOWNERS HIT BY VALUE DECLINE
* Enable refinancing for 4 million to 5 million "responsible" homeowners who took out conforming 30-year fixed mortgages with a downpayment of 20 percent or more and are current on payments.
* The decline in home values means many of these families cannot qualify for conventional refinancing because their loan-to-value ratio now exceeds 80 percent.
* The program would allow mortgages owned or guaranteed by Fannie Mae and Freddie Mac to be refinanced through private lenders, reducing monthly payments, as long as the amount owed on a first mortgage does not exceed 105 percent of the property's current market value.
* Refinancing rates will be based on market rates in effect at the time of the refinance plus any associated points and fees quoted by the lender. All of the refinanced loans under the plan will be 30-year or 15-year fixed-rate notes.
* Mortgage lenders will accept applications after program details are announced on March 4.
$75 BILLION TO PREVENT FORECLOSURES ON "AT RISK" BORROWERS
* Initiative intended to reach 3 million to 4 million "at risk" homeowners who are struggling to afford their mortgage payments. It aims to bring payments down to 31 percent of a borrower's monthly income through modifications at no cost to the borrower.
* Program targets owner-occupants with high mortgage debt compared to income or those with "underwater" mortgages that exceed the value of their homes. Borrowers don't have to miss payments to qualify.
* Borrowers with high total debt obligations exceeding 55 percent of their income must enter consumer debt counseling to help reduce car, credit card and other debt to receive mortgage modifications.
* The U.S. Treasury will share the cost of reducing payments with mortgage lenders and servicers. Lenders must agree to cut interest rates so monthly payments are no more than 38 percent of a borrower's income. The Treasury will match those reductions dollar-for-dollar to bring down payments to 31 percent of income.
* Lenders must agree to keep the modified payments in place for five years.
* The Obama administration will seek "careful" changes to bankruptcy law to allow judges to rewrite mortgage terms on loans originated in the past few years. This will apply only to existing mortgages under the GSE conforming loan limits "so that millionaire homes don't clog the bankruptcy courts."
INCENTIVES, PROTECTION FOR MORTGAGE LENDERS
* Lenders participate in the "at risk" loan modifications on a voluntary basis, but will receive substantial incentives to do so. The administration anticipates most major lenders will participate.
* Mortgage servicers will get $1,000 for each successful modification under the program, and up to $3,000 over three years if the borrower stays current on payments. Mortgage holders also will receive $1,500 and servicers will receive $500 if the modifications are made before a borrower defaults.
* Borrowers will receive up to $5,000 in loan principal reductions over five years if they stay current on payments.
* The Treasury will fund a $10 billion insurance fund to protect lenders against home value declines as a means to discourage foreclosures based on anticipation of falling home prices. Holders of modified mortgages could receive payments from the fund if a home price index falls more than expected, and these could be used as reserves to offset potential increases in foreclosure losses.
BOOST CONFIDENCE IN FANNIE MAE, FREDDIE MAC
* The Treasury will double its capital funding commitments to Fannie Mae and Freddie Mac to $200 billion each under a preferred stock purchase mechanism launched last year.
* The increased backstop does not anticipate increased cash draws or a change in financial position, but is aimed at strengthening investor confidence in the two firms, helping to lower their funding costs and reduce mortgage rates.
* Fannie's and Freddie's retained mortgage portfolios will be allowed to increase under the agreements by $50 billion each to $900 billion each. This will be accompanied by corresponding increases in allowable outstanding debt.
* The Obama administration also will work with Fannie and Freddie to support state housing finance agencies to help homebuyers.
(Reporting by David Lawder; Editing by Bill Trott and David Wiessler)
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