Support Under the Homeowner Affordability and Stability Plan: Three Cases

Family A: Access to Refinancing

  • In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000
    at the time. (The family put just over 20% down.) They received a Fannie Mae conforming
    loan with an interest rate of 6.50%.
  • Today: Family A has about $200,000 remaining on their mortgage but their home value has
    fallen 15 percent to $221,000.   
  • Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae
    refinancing.
  • Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would
    reduce their annual payments by nearly $2,350.
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Existing Mortgage
 Refinancing
  
Balance
 $199,584
 $203,575
Remaining Years
 27
 30
Interest Rate
 6..5%
 5.16%
Monthly Payment
 $1,308
 $1,113
Savings
 $196 per month
 $2,347 per
year
Family B: Access to Refinancing

  • In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000
    at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan
    with an interest rate of 6.50%.
  • Today: Family B has about $337,460 remaining on their mortgage but their home value has
    fallen to $400,000.
  • Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae
    refinancing.
  • Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would
    reduce their annual payments by nearly $4,000.
Existing Mortgage
 Refinancing
  
Balance
 $337,460
 $344,210
Remaining Years
 27
 30
Interest Rate
 6..5%
 5.16%
Monthly Payment
 $2,212
 $1,882
Savings
 $331 per month
 $3,968 per
year
Family C: Eligible for Homeowner Stability Initiative

  • In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth
    $230,000 at the time (they put less than 5% down). Their mortgage broker – Mom & Pop
    Mortgage – sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.
  • Today: Family C has $214,016 remaining on their mortgage but their home value has fallen
    -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-
    time work, causing a significant negative shock to their income.  
  • Their loan is now 113% the value of their home, making them “underwater” and unable to
    sell their house.
  • Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has
    fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.  
  • Under the Homeowner Stability Initiative: Family C can get a government sponsored
    modification that – for five years – will reduce their mortgage payment by $406 a
    month. After those five years, Family C’s mortgage payment will adjust upward at a
    moderate, phased-in level.
Existing Mortgage
 Loan Modification
  
Balance
 $213,431
 $213,431
Remaining Years
 27
 27
Interest Rate
 7.50%
 4.42%
Monthly Payment
 $1,538
 $1,132
Savings
 $406 per month
 $4,870 per
year
Homeowner Stability Initiative: How the Program Works for the Lender, Government
and Borrower

  • First, Investment Bank (working through a mortgage servicer) reduces the interest rate so that the
    Family C’s monthly debt-to-income ratio drops from 42% to 38%. This means that Investment Bank
    must reduce the interest rate from 7.50% to 6.38%, bringing down Family C’s monthly payment
    from $1,538 to $1,387.
  • Second, the government and Investment Bank share the cost of further reducing the interest rate
    so that the Family C’s monthly debt-to-income level is lowered to 31%. Any dollar the bank spends
    is matched by the government. At this stage, Family C’s interest rate is reduced from 6.41% to
    4.43%. In total, Family C’s monthly payment has fallen from $1,538 to $1,132.   
  • If Family C remains current on their payments, they will receive incentive payments up to $1,000 a
    year, or $5,000 over five years, that would go towards reducing the principal they owe.
    Additionally, the mortgage servicer can earn an up-front incentive fee of $1,000, plus up to $1,000
    per year in “Pay for Success” fees for three years, so long as Family C remains current.



All information from The White House Blog.

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Affordability and Stability Plan
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