On Wednesday, Feb. 18, President Obama unveiled a major new foreclosure prevention program - the Homeowner Affordability and Stability Plan (HASP). The multi-billion dollar effort is based on three strategies:
Foreclosure prevention by refinancing mortgages held by Fannie Mae and Freddie Mac: The goal is to protect those homeowners with homes that have lost significant value to the extent they are unable to refinance under the current Fannie and Freddie rules. As part of the HASP, Fannie and Freddie will change their policies regarding the amount of equity a borrower must have in their home in order for them to refinance into a mortgage with a lower interest rate.
Homeowners able to refinance their mortgages under these new rules could end up with a lower mortgage payment. In situations where a borrower has lost their job or is experiencing other financial difficulties, the lower payment could prevent them from becoming delinquent on their payments and help them avoid foreclosure.
Homeowner Stability Initiative: This part of the plan will provide a variety of incentives to lenders to keep "at risk" borrowers out of foreclosure. In exchange for federal assistance, lenders will either reduce interest rates or principal amounts in order to also reduce a borrower's payment.
Additional support for Fannie Mae and Freddie Mac: Stabilizing and supporting the two major players in the secondary mortgage market is key to the security of residential real estate. The Treasury Department will take several steps to ensure the viability of Fannie Mae and Freddie Mac, including providing $200 billion to each and purchasing mortgage-backed securities. These actions are anticipated to boost investor confidence in both GSEs and ensure lower interest rates for mortgages purchased by Fannie Mae and Freddie Mac.
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