If real estate is truly the root of the economic recession, then this new proposal from President Obama should help. The plan calls for $75 billion to help 9 million homeowners who can no longer afford their monthly mortgage payments and are at risk for foreclosure.
Here is how this plan would help.
If you owe more than 80% of your home’s value, this plan will help you refinance your mortgage. How will the value of your home be determined? Will they use the purchase price, current estimated market price based on other similar homes sold recently (which could be considerably lower), or some appraised value?
If you’re at risk for foreclosure, the $75 billion would be used to subsidize your mortgage interest rate. This would lower the interest rate you see while the lenders still receive their money from the government. The goal is to keep payments below 31% of income. But what happens when income suddenly drops to zero through the loss of a job? 31% of zero is still zero.
If you declare bankruptcy, a judge will have the authority to modify your mortgage. This is good news for consumers with no other options.
There are a number of other measures that affect lenders rather than consumers. The plan offers incentives for lenders to help at-risk borrowers who are not yet late with payments. $10 million will be set aside to protect lenders against further home price declines.
At this stage, this is just a proposal. The Senate and the House of Representatives will both draw up their own versions of this proposal and eventually agree on a bill. This could take some time, and as sentiment turns away from helping citizens directly, particularly if it is widely believed that homeowners generally find themselves in trouble due to their own choices and actions, there may be a struggle to turn this proposal into an agreed-upon law.
Published or updated February 18, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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Luke Landes founded Consumerism Commentary in 2003 and has been building online communities since 1990. Luke, also known as Flexo, has contributed to PC World Magazine, US News, Forbes, and other publications. 
{ 6 comments… read them below or add one }
I don’t get it. $75 million divided by 9 million people is just about $8.33 per person. Let’s say they’re counting each and every homeowner, so maybe some couples with both names on the lease get a whopping $16 and change. This is a one-time payment, right? What good is $16 going to do anyone in terms of their mortgage? Even if you mislaid a zero somewhere, we’re still talking $160 per homeowner-couple, on average. What am I missing?
kinda makes me want to buy a house I can’t afford and not make payments on it so the government will bail me out too…
@Kate I think it’s $75 billion.
It doesn’t matter though, it’s about as useful as $13 a week.
First businesses can’t fail, now people.
I’ve actually heard rumors of people who are going to buy 2nd houses in this down market and foreclose on the first.
If humans are to implement, supervise or to otherwise carry out this noble scheme, I think the good people of America can kiss this $75b goodbye.
Minds must now be very busy at work creating schemes to take this money out. Thomas’ comment refers to but one possible scheme. God knows how many more will come out.
Looks like we have to find a way to take out the human element somehow.
I tried HARP@ , but unless you have a 45 Debt to equity ratio you are wasteing your time.
Gordy