Obama's "Homeowner" Plan

In this post, we highlight Fannie Mae (FNM), Freddie Mac (FRE), Citigroup (C), JP Morgan Chase (JPM) and Bank of America (BAC).

President Obama unveiled the housing plan called the "Homeowner Affordability and Stability Plan" earlier this morning. The main components of the plan are:

1) Providing access to low-cost refinancing for "responsible" homeowners. It is intended to help 4 to 5 million homeowners who have conforming loans, owned or guaranteed by Fannie Mae (FNM) or Freddie Mac (FRE)

2) Creating a $75 billion "Homeowner Stability Initiative" to help 3 to 4 million struggling homeowners who commit to make reasonable monthly mortgage payments The initiative will involve, among others:   

• Making efforts to reduce the borrower's monthly mortgage payment to 38% of his or her income
  
• Providing incentives to servicers for making modifications
  
• Creating an insurance fund up to $10 billion to discourage lenders from opting to foreclose
  
• Allowing judicial modifications for Borrowers Who Have Run Out of Options
  
• Providing $1.5 Billion in relocation and other forms of assistance to those displaced by foreclosure and $2 Billion in Neighborhood Stabilization Funds

3) Supporting low mortgage rates by doubling the preferred stock back-stop funding for Fannie Mae and Freddie Mac to $200 billion each, and continuing the purchase of mortgage-backed securities issued by them.

The plan is more expensive than earlier projected (more than $275 billion, including the increased funding for Fannie and Freddie) and contains many complicated details.

We are reiterating that any plan for economic recovery has to address the housing problem first and an effort to prevent foreclosures is certainly a good start. However, the success of this plan will be mainly determined by how effectively it is implemented, and above all, it will take quite some time to have substantial effect on the housing prices.

While we should not expect the things to turn around quickly, it is a beginning in the right direction. Further, some banks, including Citigroup (C), JP Morgan Chase (JPM) and Bank of America (BAC) have already announced the suspension of foreclosures till the new plan is implemented.

Read the full analyst report on FRE

Read the full analyst report on FNM

Read the full analyst report on FRE

Read the full analyst report on C

Read the full analyst report on BAC

Read the full analyst report on JPM