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President Barack Obama announced a plan Wednesday that aims to help homeowners who are struggling to pay their mortgages and rescue the country’s declining housing market.
Though there is rampant discussion about how well it might work, there is one consensus of opinion: It's too early to tell.
The Homeowner Affordability and Stability Plan gives homeowners whose mortgages are held or guaranteed by Fannie Mae and Freddie Mac more options to lower their payments through subsidized interest rate cuts for at least five years and offers $5,000 per homeowner to reduce their mortgage principal.
The voluntary program also will offer lenders a set of incentives to redo those loans.
The plan is positioned for borrowers who owe up to 5 percent more than what their home is worth, but details won’t be announced until March 4.
Administration officials have said the plan could protect between 7 and 9 million homeowners – a large portion of whom would likely face foreclosure without it -- and there are foreclosures in Shelby County every week.
Many who support the plan say they feel it can help slow foreclosures and the declining value of neighborhoods. And both lenders and investors benefit by getting incentives to modify loans and stay current on payments.
Still, critics of the plan say it won’t be enough. There aren’t yet details on how it will be implemented.
They say the millions of workers who lost their jobs will continue to struggle with their payments, and the plan will only delay the inevitable, as higher interest rates and taxes will eventually catch up.
But how will it impact Shelby County?
“Time will only tell. It seems they’re trying to put a Band-Aid on the situation to slow things down. I don’t think we’ll see immediate effects,” said Chris Waford, VP of mortgage lending at Citizens Union Bank.
Waford’s reasoning is that when people want to buy a house or refinance their current home, they have to have an appraisal, and that appraisal requires comparable sales to that home that have been sold within the last six months.
With the struggling housing market, there are fewer sales in recent months than there were a few years ago, and a lot of those houses went into foreclosure, so the comparable sales pool represents that downward trend in price.
“People’s homes appraised for $300,000 five years ago may be appraised for $290,000 now,” he said.
In any neighborhood that has a problem with foreclosures, they’re hurting the home value for everyone else, he said, even those who are still meeting their mortgage obligations.
The government’s new plan is designed to keep homes from going into foreclosure.
“The local banks are seeing more foreclosures because of the economy, but I don’t know if the modification is really going to be a direct impact on CUB [Citizens Union Bank], Commonwealth [Bank] or Republic [Bank] -- those types of companies,” Waford said.
Todd Davis, master commissioner for the Shelby Circuit Court, said there were more than 150 foreclosures in the county in 2008, and without more relief that number could increase this year.
So far, he said it’s impossible to tell how Obama’s plan will work out.
“As in most things like this, the devil is always in the details. It’s so new, I’m not sure how difficult the implementation of it will be,” he said.
“Bottom line, there has to be something to stabilize the housing market. All the other ills -- economic downturn, recession -- are flowing from that. Otherwise just throwing more bailout money won’t do any good at all unless the value of the undervalued assets are stabilized somehow.”