Who Does The Government's Home Affordable Plan Really Help?

The U.S. Treasury recently announced specifics of the Obama administration’s “Making Home Affordable Plan”. The plan, which is intended to assist up to nine million homeowners, has been widely reported by the news media.

Here are a few keys of the announcement:

• Home owners in need of financial assistance receive detailed loan modification guidelines
• Home owners that have lost equity and need to refinance receive very little guidance

First, for the approximately four million home owners that need financial assistance, the government provided comprehensive instructions detailing how the loan modification process will work. The program also offers subsidies to mortgage servicers to modify loans so that at risk home owners will not lose their homes.

In order to determine your eligibility, the government created an online form entitled "Am I Eligible For Making Home Affordable."

The second part of the plan gave very little guidance to the approximately five million home owners that need to refinance but owe more than their home is worth. The Treasury offers only a basic Q&A info sheet and encourages would be borrowers to contact Freddie Mac or Fannie Mae to determine if they are eligible.

These borrowers should be current with their mortgage, have their loans held by Fannie Mae or Freddie Mac, and cannot owe more than 105% of the value of their home. Fannie Mae and Freddie Mac, as opposed to the Treasury, will then set the guidelines for refinancing.

Another interesting aspect of this announcement is that the Treasury isn’t as concerned with driving mortgage rates down to 4.5% or lower. The Fed is continuing to purchase mortgage backed securities which is helping to keep rates low, but market forces are in effect.

If you are in the home financing process, whether a new home purchase or refinance, stay the course and close the loan. If mortgage guidelines change in a positive direction later this year, you could always make the necessary adjustments at that point.

Image Source: The Wall Street Journal