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Obama's Housing Plan Uses Low Interest Rates to Encourage Home Ownership

Posted by  on Apr 20, 2009
 

The Homeowner Affordability and Stability Plan, recently enacted by President Obama and his economic team, helps lenders and borrowers collaborate on lasting solutions for the country's housing crisis.

Too Many Homeowners Risk Default
As home prices skyrocketed in California, Texas, Nevada, and Colorado, many Americans made financial decisions based on assumptions that low mortgage rates would stay around forever and that rising property values would offset any deductions made from home equity. Sadly, over-leveraged borrowers have since discovered the effects of a cooling-off period in the housing market. Recent statistics indicate that about one in ten American homeowners is in default on a mortgage, while about half admit that they could not stay in their homes if they missed two paychecks in a row.

HASP Refinance Provision Allows Borrowers to Obtain Lower Rates
Therefore, policy makers crafted a housing plan that partially addresses one of the root causes of economic distress. The Housing Affordable Refinance Plan (HARP) enables borrowers with "upside down" mortgages to refinance their home loans to current mortgage rates. By helping borrowers partner with lenders to refinance mortgages up to 105% of present day values, many Americans can rebalance their personal budgets while avoiding foreclosure. Likewise, with support from government sponsored enterprises like Freddie Mac and Fannie Mae, lenders can return to the business of helping borrowers maintain homes and grow businesses.

Low Mortgage Rates Pave the Way for Stable Home Ownership
By emphasizing fifteen and thirty year mortgages, federal policy makers hope to influence Americans' attitudes toward long term home ownership. Over time, homeowners may become less likely to sacrifice low mortgage rates for quick cash. Instead, borrowers can focus on adding value to their homes and communities, rather than participating in the kind of overheated property markets that critics blame for causing much of the current economic downturn. As bank and bond investors realize more consistent returns from mortgage backed securities, the American economy can return to the even keel it enjoyed over seven previous decades.

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