Now that Obama has signed the American Recovery and Reinvestment Act, what does that mean to those struggling to pay their mortgage and on the brink of foreclosure? 

Obama has implemented The Foreclosure Prevention Plan that will address these individuals. 

The plan isn’t directed towards home owners who are in trouble with a second home, investors, or homeowners whose mortgage is part of a private-label mortgage security that is not backed by Fannie Mae or Freddie Mac.

The three areas of the plan are:

·         Loan modification for those already in default. Estimated impact: 3-4 million households.

The government will provide a $1,000 payment incentive to lenders who voluntarily agree to lower the borrower’s payment. In most cases this will allow the borrowers to decrease their debt to income ratio to 31 percent, no more than 38 percent. This is also an incentive to the borrower by decreasing their mortgage payments b y $1000. That provision requires legislation by Congress.

 

·         Freddie Mac and Fannie Mae Loan Holders at risk of default and foreclosure. Estimated impact: 4-5 million households.

Home owners with a Freddie Mac and Fannie Mae loans would be eligible to refinance their loan. The amount of the refinanced loan cannot exceed 105 percent of the home's current market value. These owners need to have at least 20 percent equity, but more would definitely advisable. 

 

·         Increase Fannie Mae and Freddie Mac resources.

The government will explicitly backstop the secondary market companies' mortgage-backed securities to twice the current amount to up to $400 billion. This will help encourage investors to invest and help revive the real estate markets.