What the Obama housing plan will, won't do
By Holden Lewis • Bankrate.com

President Barack Obama introduced a $75 billion homeowner relief program Feb. 18. Who will it help?

Two sets of homeowners will be eligible to get help under the Obama administration's foreclosure-prevention plan:

1. People who got plain-vanilla conforming mortgages and who have never fallen seriously behind on the monthly payments might qualify to refinance at lower interest rates -- even if they owe as much as the house is worth.

2. People who have subprime mortgages, or exotic loans such as pay-option ARMs, might qualify to keep their current loans, but have them modified to make the payments more affordable.

"The plan I'm announcing focuses on rescuing families who played by the rules and acted responsibly," President Obama said in announcing the Homeowner Affordability and Stability Plan, or HASP. He explained this would be done by "refinancing loans for millions of families in traditional mortgages who are underwater or close to it, by modifying loans for families stuck in subprime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune, and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments."

The Obama administration estimates that HASP will help 7 million to 9 million families avoid hardship or foreclosure. But many won't be eligible to get help because of the limitations and exceptions in the plan.

Probably the biggest hole in HASP is that it won't help many people where house prices have fallen most: California, South Florida, Las Vegas and Phoenix. A lot of these people won't be eligible for refinancing because they owe much more than their houses are worth.

Another gap in the plan: It provides a path to refinancing for people whose loans were securitized by Fannie Mae or Freddie Mac. Millions of homeowners have mortgages that were securitized, but not by Fannie Mae or Freddie Mac. They might find it difficult to refinance, whereas their neighbors who got similar loans securitized by Fannie or Freddie might have an easier time qualifying for refinancing. Most borrowers won't know if they have a Fannie or Freddie loan until they ask the servicer.

The administration has set itself a March 4 deadline for getting the refinancing and modification programs rolling. On top of that, the administration wants to impose "clear and consistent guidelines for mortgage modifications" -- a task that has been occupying the mortgage industry's sharpest minds for months.

Refis and modifications
The plan has two main pieces: refinances for conforming loans, and modifications for subprime and exotic loans. The refinance piece is designed to help 4 million to 5 million "responsible homeowners."