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PRESIDENT OBAMA HOUSING RELIEF PLAN TO HELP SOME, But Many Others Likely Left Out!

IN CHICAGO, MANY HOMEOWNERS HAVE SEEN THEIR VALUES FALL MORE THAN THE 5% VALUE THRESHOLD TO QUALIFY!

On the surface, the President's new plan to help many homeowners at the doorsteps of foreclosure seems promising.  Unfortunately, however, many more will be left on the sidelines, because the value of their homes, as compared to their outstanding mortgage balances, has fallen too far.

The Obama Plan, detailed in Washington Wednesday, as reported by AP Real Estate Writer Alan Zibel in yesterday's Chicago Tribunewould help those homeowners whose mortgage balance is up to 5% greater than the current market value of their home.  Lenders would modify the mortgages of those homeowners to greatly reduce their monthly mortgage payments, and make them far more affordable.

In many cases, however, including hundreds of homeowners in Chicago, the owner's mortgage balance is far greater than that 5% threshold - especially for those who took out high-leverage sub-prime loans during the peak of the Chicago Real Estate Market just over two years ago.

According to index data from S&P/Case Shiller, via Les Christie, CNNMoney.com Staff Writer, Chicago Area Home Prices have tumbled 14.3%, based on their February, 2009 research, for the period covering the Fourth Quarter, 2008.   Many of the clients we have spoken with with high-leverage loans now find their Market Value 10% or more below what they presently owe.

Hard-hit California cities like Stockton and Modesto have pockets of distressed properties where the current owner's mortgage balance exceeds today's Market Value by 50%, or even more!

According to Moody's Economy.com, roughly 27% of all U.S. Homeowners owe more on their home than their home is worth today.  That translates to about 14 Million Homeowners.  In the same Zibel story, data from First American CoreLogic shows nearly half of all homeowners in the State of Nevada are "underwater" on their mortgage loans.

Although several large U.S. Lenders - such as Wells Fargo and J.P. Morgan Chase, have praised the plan, many experts are skeptical of its likely success.

The Obama Program consists of two parts.  

The first would offer loan modifications, to more attractive loan terms, to as many as 4 Million homeowners nationwide.  The second portion would offer roughly 5 Million distressed homeowners an option of refinancing into lower rate loans.  Both programs are voluntary to lenders.

Only one loan modification will be allowed, and only those homeowners who purchased their home before January 1st of this year will qualify.  High-end mortgages, roughly $730M and over, will not be covered.  Under new loan terms, borrowers could reduce their interest rate to as low as 2.00% for the first five years, then increasing to 5.00% until the loan is fully repaid.  The program runs through the end of 2012.

The refinance program would have to involve a Fannie Mae or Freddie Mac Guaranteed Loan.  Borrowers must apply no later than June, 2010.

In sum, it appears the new program is far from a complete solution.  It is likely we'll be continuing to hear about the most stressed homeowners in danger of losing their homes for many months to come.

DEAN MOSS & DEAN'S TEAM CHICAGO

Posted: Thursday, March 05, 2009 11:45 AM by Dean's Team

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