President Barack Obama's $75 billion housing rescue plan announced Wednesday in Mesa promises to help up to 9 million homeowners facing the prospect of losing their homes.
But every loan, home and situation is different, and whether the Homeowner Affordability and Stability Plan will help a specific East Valley family facing foreclosure depends on their individual circumstances.
According to White House and Treasury officials and local real-estate brokers, the program in broad terms is designed to help two kinds of homeowners.
First is the homeowner who took out a prudent mortgage with a substantial down payment but whose home value has declined so much that they have little or no equity left.
Such homeowners would be helped if they could refinance - take out a new loan at today's historically low interest rates and thereby reduce their monthly payments. But many cannot do that because their home value has decreased too far for them to qualify for refinancing.
New guidelines outlined in the Obama plan should help some homeowners. They would allow those who owe up to 105 percent of the current value of their home to qualify for a new loan backed by Fannie Mae or Freddie Mac, the federal institutions that own most mortgage loans in the United States. Also, there would be no prepayment penalties.
Speaking to reporters Wednesday in Mesa, Treasury Secretary Tim Geithner said those provisions should help 4 million to 5 million homeowners refinance and save them $2,300 per year in mortgage payments.
This program would primarily help those who are making payments on time but could be in danger of defaulting in the future. Thus it is designed to be proactive - preventing problems before they happen.
Unfortunately, real-estate brokers say this program is not likely to help many homeowners in Arizona - or in Nevada, Florida or other areas that are hardest hit by the foreclosure crisis. That's because home values in those areas have declined so far that many homeowners are too far under water - they owe much more than 105 percent of the current market value of the house.
Also not qualifying are those with "jumbo" mortgages above $410,000.
The second part of the Obama program is likely to be more helpful to Arizonans, experts say. It is aimed at homeowners who are in greater distress, struggling to make their payments - perhaps because their hours have been cut back at work or their mortgage rate has changed - but they still could make payments reduced to 31percent of their income.
That group might be eligible for a modification of the terms of their existing loan, reducing the interest rate or principal or extending the length of the loan to lower the monthly payment to a manageable level.
The loan servicer would reduce the payment to 38 percent and then the federal government would pay half of the cost to get it down to 31 percent.
The federal government had already been encouraging lenders to voluntarily negotiate such modifications with borrowers. But the results have been meager so far, and Obama's plan gives them greater incentives to make such deals. The lender or loan servicer would receive $1,500 if they modify the loan before it goes into default, and a $10billion insurance pool is being set up to protect them from further declines in home values.
Also the borrower will receive $1,000 per year for five years if they make their new payments on time. After five years, the loan would return gradually to its original terms.
In another effort to head off problems before they become acute, homeowners don't have to be delinquent in their payments to benefit, said Shaun Donovan, secretary of Housing and Urban Development.
"This is different from what's been done in the past," he said. "What we've found in our research is that the earlier we can get to homeowners that are in trouble, the more chance they have at successfully modifying their mortgage and being homeowners in the long run."
Donovan said this portion of the plan would help 3 million to 4 million homeowners avoid foreclosure nationwide. To qualify for modification, owners would have to occupy their homes, denyingaid to speculators whose motivation for buying the property was to resell it at a profit.
Also those who have lost their jobs or for other reasons can't afford a reasonable monthly payment are probably out of luck.
As a last resort, Obama is encouraging Congress to change federal law to give bankruptcy judges the authority to modify loans if the other procedures don't work. But bankruptcy would only come in if all the other provisions of the plan fail to fix the problem.
Most of the program can be implemented without action by Congress. Standardized guidelines are scheduled to be released by the Treasury Department on March 4, and administration officials said the initiative could start to stem foreclosures this spring.
The program has drawn much criticism from those who say it rewards those who have ended up in trouble with their payments but not those who have managed their finances more responsibly. Others say the initiative doesn't go far enough to benefit everyone who might be deserving, such as those who have lost their jobs through no fault of their own.
The administration responds by saying it will benefit everyone in the long run by improving the general economy. Geithner said it will put additional money in the hands of Americans, thus acting as an additional stimulus. And by keeping more homes out of foreclosure, he said, it will keep home prices from falling more than they otherwise would.
"All Americans have a stake in making this work," he said.