Credit unions and other financial institutions would receive financial incentives for rewriting the terms of loans for consumers in danger of losing their homes, under a plan unveiled today by President Obama.
In a speech in Arizona, Obama said his plan would help as many as 9 million homeowners who are having difficulty making payments or who can't refinance their homes because of declining home values.
The initiative includes a loan-modification plan that could affect between 3 million and 4 million homeowners and a plan to help between 4 million and 5 million homeowners refinance their homes.
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The program provides money to encourage mortgage servicers, mortgage investors, and homeowners to work together to rework the terms of loans. It also includes a provision to allow judges to rewrite the terms of mortgages during bankruptcy proceedings. This so-called "cram down provision" is strongly opposed by both CUNA and NAFCU who say it would hurt credit unions financially and change the terms of previously agreed to contracts.
Homeowners that stayed current with their payments would see those payments cut by $1,000 for each of the next five years. Companies that modified a loan would receive a $1,000 up-front fee and an additional fee of up to $1,000 annually if the borrower stays current.
The Obama administration estimates this could cause homeowners to see the value of their home stabilized against price declines by as much as $6,000.
The refinancing component would involve Fannie Mae and Freddie Mac. The plan would change the restrictions that limit Fannie and Freddie from refinancing mortgages valued at more than 80% of a home's net worth.
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