The Obama administration's plan for a housing rescue helps two groups of homeowners largely left out of previous efforts and also aims to deny benefits to those who have been unwise or greedy, according to details released last week.
President Barack Obama's plan would greatly expand mortgage relief to those who haven't missed payments and those whose homes are worth less than their mortgage.
In Connecticut, 14 percent of all single-family houses and condominiums have mortgages larger than what the properties are worth, according to new data from the Warren Group, which tracks real estate in New England. In Hartford, 45 percent of homes have mortgages that exceed their value. In Meriden, the figure exceeds 33 percent.
What the housing rescue program will not do, administration officials said, is reward the unwise or the greedy. Nor will it provide much help to those in the highest-priced areas, though it does reinstate last year's higher loan limits for refinanced or modified mortgages to $729,750 in more expensive areas.
"The plan is not intended to prevent every foreclosure or help every homeowner," said a senior Treasury official, who briefed reporters on condition of anonymity. "It is targeted at responsible homeowners. It will do nothing for speculators or flippers."
Lenders and brokers said that reinstating higher caps for eligible loans would help certain borrowers whose mortgages were purchased or backed by Fannie Mae and Freddie Mac. The higher cap had expired in December. The higher limits the Obama stimulus plan reinstated last month expire at the end of this year.
The idea is not to prevent all foreclosures, but to curb those the government deems "unnecessary," loans to responsible borrowers doing their best to stay in their home during rough economic times.
The administration has dubbed this the "Making Home Affordable" initiative and it has two main parts. One is aimed at prudent but "underwater" homeowners who would like to refinance into a lower rate, and the other at borrowers facing financial hardship who are seeking a way to lower their monthly mortgage payments.
Both programs are limited to borrowers who live in their homes, owe no more than $729,750 and fully document their incomes. The programs are effective immediately.
Details of the eligibility requirements for both programs has been posted on www.financialstability.gov.
The first part, called "Home Affordable Refinance," is aimed at homeowners whose property has lost value. It would be open only to borrowers with so-called conforming loans backed by Fannie Mae and Freddie Mac, and it would waive the usual conforming requirement that the borrower have 20 percent equity in the home.
The program would not reduce the principal of the loan, but it would allow the borrower to refinance that principal up to 105 percent of the home's current value.
Loans made with the support of other government agencies, including the Federal Housing Administration, the Department of Veterans Affairs or the Department of Agriculture, are not eligible.
The second program, called "Home Affordable Modification," is aimed at borrowers whose payments have become unaffordable, because of a hardship such as job loss or illness, or because the interest rate has been reset higher on an adjustable-rate mortgage. The government would provide cash payments and financial subsidies to help the lender lower the monthly payment to as much as 31 percent of the borrower's gross monthly income.
In most cases, the lender would reduce the interest rate to as low as 2 percent for five years. If that did not bring down the payment, the lender also could extend the term of the loan to 40 years or temporarily reduce the principal.
The 31 percent target income level would apply only to the borrower's primary mortgage payment; second mortgages, home equity loans and other consumer debt would not be included.
However, administration officials said they will offer other financial incentives to servicers to reach agreements with second lien holders to accept partial repayment of those debts..
Those whose interest rates are reduced below market value would see rates float back after the initial five-year loan period, at 1 percent a year, up to the market rate on the day the modification was signed.
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