California Homeowners Feel Left Out With Housing Plan

The new housing plan unveiled this week by President Obama’s administration is aimed at aiding 9 million Americans avoid foreclosure. However, there are tens of thousands of people in severely depressed areas who won’t qualify as their homes value has dropped too much. The plan entails refinancing or loan term modification but is limited to those whose debt does not exceed 105% of the home’s current value. Loan modifications, as outlined in the plan, will be unavailable for homeowners whose homes are worth considerably less than when they first purchased them. In the California communities of Modesto, Merced, and Stockton more than 10% of homeowners face this problem. Even areas like the Mill Valley real estate market have been affected. However, that market seems to have possibly bottomed out and is showing signs of a turnaround. Most of the ineligible homeowners reside in FL, CA, NV, and AZ; but can also be found in struggling communities such as Detroit and Grand Rapids, Michigan. Even in the D.C. suburbs, where a relatively healthy economy persists, property values have dropped considerably.

Government officials agree that the new legislation represents only a partial solution to the housing crisis which has been key in our economy falling into the worst recession we’ve seen in decades. Out of nearly 52 million people who currently own a home, 27%, close to 14 million, owe more than the current value of their homes. Nearly half of Nevada homeowners face this problem. Though some banks, JP Morgan Chase and Wells Fargo for example, have offered praise for the housing plan; many experts are skeptical that banks will be open to adopting new practices. The plan consists of 2 parts. The first part offers incentives to encourage lenders to re-write or modify the loans of 4 million homeowners. The second part entails refinancing the loans of another 5 million Americans into fixed-rate loans which will be more affordable.

The loan modification program will run through 2012. To qualify, homeowners will have to provide their last tax return and 2 paycheck stubs, as well as sign an “affidavit of financial hardship”, outlining the reasons for their financial downfalls. The government will then attempt to verify the information given. Borrowers will only be allowed to modify their loans one time and only on loans signed before Jan. 2nd. There is a maximum property value of $729,750 to qualify. Lenders could reduce interest rates to as low as 2% for 5 years, after which the rate would rise to 5% until the mortgage is paid in full.

The refinancing portion of the plan is available only to homeowners whose mortgages are held or guaranteed by Fannie Mae or Freddie Mac. Those homeowners must apply for assistance by June of 2010. The two mortgage industry giants own or guarantee about 30 million home loans collectively, which represents the majority of home loans in the US. Both companies have said they will be lowering some fees so that more borrowers can qualify.