Details Of The Refinancing Plan

Mar 16th, 2009 @ 3:45 PM by Alden Smith

This week, the Web is aflame with the news about AIG and its bonus plan.  Many taxpayers, including myself, are enraged to see millions of dollars paid in bonuses to the people that put us in this spot to begin with.

President Obama, of course, will take heat for things like this happening.  He already meets a great deal of resistance for his plans laid out this far.  It is rather hard for American taxpayers to understand what Obama is doing, and much of this is due to the fact that we know little about his plans.

The president’s refinancing plan has thus far been shrouded in mystery.  Now the details are becoming more clear.  If you haven’t been paying attention, this part of the refinancing plan is aimed at those who have been responsible.  Homeowners who would like to refinance to today’s lower interest rates but are prevented from doing so due to falling home prices may see some relief now.

Originally we have been told that only conforming loans would qualify.  Supposedly relief would only be available to borrowers whose loan balances were less than the Fannie Mae max loan amount of $417,000.  In the details of the plan, we see that refinancing could be available up to a current balance of $729,750.

This makes good sense for several reasons.  Under the plan we would see these actions:

1.  The plan would only be available to owner occupants who are current on existing loans.
2.  The program is only available for loans that are guaranteed by Freddie Mac or Fannie Mae.
3.  Homeowners must be able to qualify for the new lower interest rate loans.
4.  Under these guidelines, a homeowner can get a loan for as much as 105% of the appraised value of the property.

Having Fannie and Freddie holding the paper makes good sense.  The government is already responsible for these loans, so it only makes good sense to make them affordable and easier to obtain.

The plan also has incentives for lenders.  They can receive as high as $6,000 in direct payment if the loan is modified in the borrower stays current for at least three years.  There also may be insurance payments to holders of modified loans if there is a decline in local home prices.

This looks like a win-win situation to me.  Many taxpayers are sick and tired of seeing on the nightly news about companies that are “too big to fail.”  President Obama’s plans are losing popularity because of situations like we had this week with the bonuses at AIG.  Although I am in full support of President Obama, I have to wonder if the mechanics of Washington are not getting to him.  We  saw a tremendous package passed with billions of dollars in earmarks.  This is something the President Obama had promised he would veto line by line.  Yeah, the guy said that.  I am wondering how many toes Obama needs to step on in order to win the full trust of the American people.