While tied to outside influences more than ever and facing slipping economic statistics, Utah nonetheless will fare better than many states when emerging from the economic downturn, the chief economist in the Governor's Office said Tuesday.
Speaking Wednesday at the Utah Foundation's annual meeting, Juliette Tennert said Utah's economy is "more broadly integrated" with the national and global economy than ever before and thus Utah's performance will depend on what happens at those levels. But several factors — unique demographics and industry diversity among them — work in Utah's favor for recovery, she said.
"We have one of the most diverse economies in the nation," Tennert said. "That means that while we're certainly impacted by the national contraction, we'll recover quicker than many other states."
Tennert is predicting Utah's unemployment rate to pass 6.5 percent in 2010 although still be relatively low when compared to most other states and the national prediction of above 9 percent. Utah employment will move from slight growth to a 2.5 percent decline in 2009 and flatten in 2010. "This will be the worst decline since the 1950s; however, it will not be as bad as the 3-plus decline that's expected at the national level," Tennert said.
"If not for the infusion of cash (from the federal economic stimulus package), I expect that this picture would be even grimmer," Tennert said. "While the outlook over the next year is certainly weak, we should not forget about the inherent strength and durability of Utah's economy. We are well-positioned to manage the downturn, and we really should be grateful for those dynamics that I mentioned that will help keep Utah's downturn less severe and help us to recover quicker than in many other states."
Economic woes led the Legislature to budget cuts of $250 million and later $350 million. Senate Majority Assistant Whip Greg Bell, R-Fruit Heights, described those cuts as "truly Draconian" but also "done with as much precision as possible."
Federal stimulus funds "effectively hide" effects of budget cuts in 2010, but the full effects will be seen in 2011, he said.
"We don't live in a vacuum, and I think that's going to be the message today, that Utah is doing extraordinarily well in so many regards and though our ship seems to sail fairly well, we are getting a lot of backwash from national and international conditions over which we have no control," Bell said. "So for a while it seemed some were immune and now it seems no one is, and we're all going to have to live with the difficult circumstances and conditions imposed upon us by these challenging times."
Natalie Gochnour, chief operating officer at the Salt Lake Chamber, said long-term economic success for Utah can be tied to globalization efforts, including continued funding and a building to house the World Trade Center Utah and becoming a "more welcoming" state. "We live in a post-American world, period," she said. Improving education and air quality and developing energy security were among her other suggestions.
By Brice Wallace
Deseret News
Published: Wednesday, March 18, 2009
Thursday, March 19, 2009
Wednesday, March 18, 2009
Study: Utah poised to rebound from recession quickly
SALT LAKE CITY -- A new study shows Utah may be poised to recover from the recession more quickly than most states. The reason, according to the conservative authors, is Utah's business-friendly environment.
This is a conservative study with a lot of praise for Utah's conservative Legislature and its policies, but the forecast is a pragmatic look at what businesses want and what Utah has.
Poised to attract more high-tech companies, more in research and medicine, in recreation, tourism and energy; Utah may have what it takes to climb out of the recession first.
"We do have a very attractive environment for business, and it's been stable," said Sen. Wayne Niederhauser, R-Sandy.
Niederhauser is one of the legislators cited in the study "Rich States, Poor States." Written on behalf of the conservative American Legislative Exchange Council, or ALEC, it claims Utah is one of the states that has advantages over other states.
One of the advantages comes in the area of tax policy, specifically income tax reform. Utah also has less government regulation and involvement is a plus for businesses.
Gov. Jon Huntsman is also working to promote Utah as a future renewable energy hub. Together, it could add up to an even more prosperous future for Utah.
"There probably is not another state in America right now with better practices, in terms of attracting, building and promulgating renewable energy," Huntsman said.
At the same time, Utah has a chance to lead the way in using prosperity to create a better life for people. It can do so in many ways. One example is in being smart about health care reform.
"We're saying it's great the state is embarking on health system reform. Let's make sure that, at the end of the day, those reforms result in predictable costs for businesses and affordable costs for employees so they can succeed on the job," said Judi Hilman, with the Utah Health Policy Project.
By comparison, states like California and New York have been raising taxes steadily. That has led to a very difficult downward spiral for those states.
By Richard Piatt
KSL-Salt lake City, Utah
This is a conservative study with a lot of praise for Utah's conservative Legislature and its policies, but the forecast is a pragmatic look at what businesses want and what Utah has.
Poised to attract more high-tech companies, more in research and medicine, in recreation, tourism and energy; Utah may have what it takes to climb out of the recession first.
"We do have a very attractive environment for business, and it's been stable," said Sen. Wayne Niederhauser, R-Sandy.
Niederhauser is one of the legislators cited in the study "Rich States, Poor States." Written on behalf of the conservative American Legislative Exchange Council, or ALEC, it claims Utah is one of the states that has advantages over other states.
One of the advantages comes in the area of tax policy, specifically income tax reform. Utah also has less government regulation and involvement is a plus for businesses.
Gov. Jon Huntsman is also working to promote Utah as a future renewable energy hub. Together, it could add up to an even more prosperous future for Utah.
"There probably is not another state in America right now with better practices, in terms of attracting, building and promulgating renewable energy," Huntsman said.
At the same time, Utah has a chance to lead the way in using prosperity to create a better life for people. It can do so in many ways. One example is in being smart about health care reform.
"We're saying it's great the state is embarking on health system reform. Let's make sure that, at the end of the day, those reforms result in predictable costs for businesses and affordable costs for employees so they can succeed on the job," said Judi Hilman, with the Utah Health Policy Project.
By comparison, states like California and New York have been raising taxes steadily. That has led to a very difficult downward spiral for those states.
By Richard Piatt
KSL-Salt lake City, Utah
Waiting for gov's signature on $6,000 grant bill
We're getting lots of questions about the $6,000 "Home Run" grant program. Utah Housing says they are not releasing any more information about the program until the governor signs the billl.
They say, in the meantime, people should start house shopping and talking with their lender. When the program is implemented, the lender will be the key link to getting the grant. We'll keep you posted here with any new developments on the program.
Ut Assoc Realtors's Notes
They say, in the meantime, people should start house shopping and talking with their lender. When the program is implemented, the lender will be the key link to getting the grant. We'll keep you posted here with any new developments on the program.
Ut Assoc Realtors's Notes
Friday, March 13, 2009
UTAH'S NEW $6,000 GRANT FOR NEW CONSTRUCTION - THIS IS HUGE, DON'T WAIT - PLEASE READ AND CONTACT ME!
I'm told that this can be used for FHA and Conventional financing and is not limited to first time home owners. However, this is only good for spec homes and new construction. Ill keep you posted once I have more information on getting the money.
Most of you have now heard about the State's effort to boost home
sales by passing HB-0206 bill aimed at the New Construction industry.
This bill will set aside $10 Million dollars of the Federal Stimulus money for the home buyer grants. Theoretically, this would provide grants to about 1,600 purchasers.
I have already been on the phone with key people finding out the specifics of the program and am happy to share the following information with you.
FACTS:
1. As of 12:30PM today, the bill has actually NOT been signed by the governor yet. But it is expected to be signed by end of day.
2. The program will be administered by the Utah Housing Corporation (www.utahhousingcorp.org
- (801) 902-8200 Darlene)
3. Lenders wishing to participate in the program must register with UHC even if they have been registered in the past for a divverent program.
4. Criteria for the loans are simple. 1) Income restriction of no more than $75K individual or $150K couple, 2) Loan must be 30 Year Fixed of any type (FHA or Conv), and 3) Must reside in residence for 3 Years. Final details will be listed on their site as soon as the governor signs the bill.
5. New Construction is defined as a home that has NEVER been lived in. No matter how long it has sat on the market.
6) It only takes about 48-hours to get approved for the Grant.
7) The fund will be reserved for 30 Days.
8) Unfinished homes qualify as long as you can get a 30-year Fixed loan.
I have signed up to receive the official notification once it is posted on the UHC web site which will mark the official start-up of the program.
STEVE JACKSON
801-243-8202
sjackson@signaturegrouputah.com
www.signaturegrouputah.com/sjackson
http://realtor4utah.blogspot.com
Most of you have now heard about the State's effort to boost home
sales by passing HB-0206 bill aimed at the New Construction industry.
This bill will set aside $10 Million dollars of the Federal Stimulus money for the home buyer grants. Theoretically, this would provide grants to about 1,600 purchasers.
I have already been on the phone with key people finding out the specifics of the program and am happy to share the following information with you.
FACTS:
1. As of 12:30PM today, the bill has actually NOT been signed by the governor yet. But it is expected to be signed by end of day.
2. The program will be administered by the Utah Housing Corporation (www.utahhousingcorp.org
- (801) 902-8200 Darlene)
3. Lenders wishing to participate in the program must register with UHC even if they have been registered in the past for a divverent program.
4. Criteria for the loans are simple. 1) Income restriction of no more than $75K individual or $150K couple, 2) Loan must be 30 Year Fixed of any type (FHA or Conv), and 3) Must reside in residence for 3 Years. Final details will be listed on their site as soon as the governor signs the bill.
5. New Construction is defined as a home that has NEVER been lived in. No matter how long it has sat on the market.
6) It only takes about 48-hours to get approved for the Grant.
7) The fund will be reserved for 30 Days.
8) Unfinished homes qualify as long as you can get a 30-year Fixed loan.
I have signed up to receive the official notification once it is posted on the UHC web site which will mark the official start-up of the program.
STEVE JACKSON
801-243-8202
sjackson@signaturegrouputah.com
www.signaturegrouputah.com/sjackson
http://realtor4utah.blogspot.com
Tuesday, March 3, 2009
Real Estate Outlook: Housing Positioned For Growth
No economist has more information at his or her disposal than Federal Reserve chairman Ben Bernanke, and what he told Congress last week should be encouraging news for anyone interested in real estate: The recession that has gripped the country painfully for 18 months will "end" later this year - moving us into positive economic growth.
In the meantime, housing may be better positioned than other major industries. That's because there appears to be significant interest in the improved $8.000, nonrepayable home buyer tax credit plus a historically-favorable combination of low interest rates and rolled-back home prices.
In a new research report, the National Association of Home Builders found that affordability of houses is now at its best level in years. The association's "Housing Opportunity Index" -- which measures the percentage of homes sold in local markets around the country that are affordable to families earning area median incomes -- hit a near-record 62.4 percent in the most recent quarter for which data is available.
By contrast a year earlier, the index was at 47, meaning that less than half of households could afford to buy a median priced home. During the boom years it was even worse.
Although rising unemployment is a sobering counter-trend, the improvement in affordability may be setting the stage for a real estate rebound -- even if monthly ebbs and flows in sales look gloomy in the first quarter of the year .
Mortgage rates continue to hover in the mid-5 percent range for 30-year fixed rate loans. Fifteen year rates are at 4.7 percent.
While average prices of homes continue to decline on a national basis, according to the Federal Housing Finance Agency, dozens of local markets -- most of them ignored by widely-publicized surveys such as Standard & Poor's Case-Shiller Index -- continue to show net positive selling price performance.
You don't hear about these positives because these areas were lower profile during the boom, never experienced a bust, and are just not on the New York radar screens.
But they're for real, and their moderate, sensible growth patterns may be where we're headed in real estate this year.
by Kenneth R. Harne,y Published: March 3, 2009
Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation.
In the meantime, housing may be better positioned than other major industries. That's because there appears to be significant interest in the improved $8.000, nonrepayable home buyer tax credit plus a historically-favorable combination of low interest rates and rolled-back home prices.
In a new research report, the National Association of Home Builders found that affordability of houses is now at its best level in years. The association's "Housing Opportunity Index" -- which measures the percentage of homes sold in local markets around the country that are affordable to families earning area median incomes -- hit a near-record 62.4 percent in the most recent quarter for which data is available.
By contrast a year earlier, the index was at 47, meaning that less than half of households could afford to buy a median priced home. During the boom years it was even worse.
Although rising unemployment is a sobering counter-trend, the improvement in affordability may be setting the stage for a real estate rebound -- even if monthly ebbs and flows in sales look gloomy in the first quarter of the year .
Mortgage rates continue to hover in the mid-5 percent range for 30-year fixed rate loans. Fifteen year rates are at 4.7 percent.
While average prices of homes continue to decline on a national basis, according to the Federal Housing Finance Agency, dozens of local markets -- most of them ignored by widely-publicized surveys such as Standard & Poor's Case-Shiller Index -- continue to show net positive selling price performance.
You don't hear about these positives because these areas were lower profile during the boom, never experienced a bust, and are just not on the New York radar screens.
But they're for real, and their moderate, sensible growth patterns may be where we're headed in real estate this year.
by Kenneth R. Harne,y Published: March 3, 2009
Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation.
Monday, February 23, 2009
First Time Homebuyer Credit...A Simple Explanation
First-Time Home Buyer Tax Credit: 6 Things to Know
While the proposed $15,000 home-buyer tax credit died in negotiations between the House and the Senate, the $787 billion stimulus bill that President Barack Obama signed into law Tuesday includes a similar--albeit smaller--measure designed to help revive the real estate market. Here are six things you need to know about the reshly-enacted $8,000 first-time home buyer tax credit.
1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.
2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.
3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.
4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.
5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.
6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)
Copyright © 2009 U.S.News & World Report, Luke Mullins
While the proposed $15,000 home-buyer tax credit died in negotiations between the House and the Senate, the $787 billion stimulus bill that President Barack Obama signed into law Tuesday includes a similar--albeit smaller--measure designed to help revive the real estate market. Here are six things you need to know about the reshly-enacted $8,000 first-time home buyer tax credit.
1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.
2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.
3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.
4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.
5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.
6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)
Copyright © 2009 U.S.News & World Report, Luke Mullins
Wednesday, February 18, 2009
Obama sets aside $75 billion to slow foreclosures
Program would seek to bring mortgage payments down to 31% of income
By Ronald D. Orol, MarketWatch
Last update: 2:38 p.m. EST Feb. 18, 2009
WASHINGTON (MarketWatch) -- The White House unveiled a plan Wednesday to help 9 million "at risk" homeowners modify their mortgages, committing $75 billion of taxpayer money to back the initiative.
The plan contains two separate programs. One program is aimed at 4 million to 5 million homeowners struggling with loans owned or guaranteed by Fannie Mae or Freddie Mac to help them refinance their mortgages through the two institutions.
A separate program would potentially help 3 million to 4 million additional homeowners by allowing them to modify their mortgages to lower monthly interest rates through any participating lender. Under this plan, the lender would voluntarily lower the interest rate, and the government would provide subsidies to the lender.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: 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," President Barack Obama said.
Homeowners that have Fannie Mae or Freddie Mac loans, who are having a difficult time refinancing and owe more than 80% of the value of their homes, would be eligible to refinance with this program. Even if homeowners with Fannie or Freddie loans have negative equity on their mortgages, they can qualify for this refinancing program. The program would only help homeowners occupying the property, not individuals who own property as investors.
To help fund the program, the Treasury Department is hiking an existing funding commitment to Fannie Mae and Freddie Mac. It will buy $200 billion of Fannie and Freddie preferred stock, up from its previously preferred stock purchase agreement of $100 billion. It also will buy more mortgage securities backed by Fannie Mae and Freddie Mac, raising the total to $900 billion, up from $850 billion previously.
Fannie and Freddie own or guarantee more than 30 million mortgages, or almost 60% of all single-family loans, according to recent estimates.
Under the $75 billion modification program involving government subsidies to lenders, the lenders will be responsible for bringing down interest rates so that a borrower's monthly mortgage payment is no more than 38% of pretax income. After that, the government program would match the amount reduced by the lender to bring a homeowner's payments down to 31% of pretax income.
Should a lender have a difficult time getting a homeowner's payment down to 31% of pretax income by lowering its interest rates, it can also lower the principal owed on the mortgage and take advantage of government assistance.
As part of the $75 billion initiative, servicers will receive $1,000 for each successful modification, as well as additional government funding for each month the borrower stays current on its loan. Homeowners can also receive $1,000 a year for five years as part of the program, as long as they stay current on their loan payments.
The program also provides additional incentives to lenders who modify at-risk loans before the borrower falls behind. The program takes effect March 4.
Loan servicers owned by financial institutions that receive government assistance from the remaining funds in the bank bailout bill would be required to implement "loan modification plans" based on Treasury guidance.
Henry Sommer, director at the National Association of Consumer Bankruptcy Attorneys, said he believes the incentives should encourage servicers to participate in the program. However, he added that even with the program, mortgage servicers may not have the staffing and resources to adjust a critical mass of troubled mortgages.
"It puts servicers in a better position to participate, but I still worry about staffing," Sommer
commented.
Obama traveled to a hard-hit Arizona community Wednesday to announce details of the program. He and Housing and Urban Development Secretary Shaun Donovan discussed their plan in Mesa, Ariz., a suburb of Phoenix that has been reeling from the housing-industry meltdown and economic slowdown.
Mesa -- Arizona's third-largest city -- saw its median home price fall 35% over the past 12 months to $140,000 in January. More than 300 families lost their homes to foreclosure there in January.
Funding
For the $75 billion program, $50 billion will come from the remaining $350 billion in Troubled Asset Relief Program funds, and $25 billion will come from Fannie Mae and Freddie Mac, according to a Treasury official.
Obama plans to package this approach within a larger housing bill that lets bankruptcy judges alter mortgages and lower interest rates for troubled homeowners. Such a provision was approved by the House Judiciary Committee last month. House Speaker Nancy Pelosi, D-Calif., said "Congress stands ready" to act on the committee's legislation.
Sommer said bankruptcy-judge authority would be the only way to provide serious help to troubled homeowners that have second loans. "These second lien loans were very prevalent in many problematic markets."
Citigroup Inc. has endorsed this approach, though other banks have yet to do so.
The new lower interest rate must be kept in place for five years. Leif Thomsen, chief executive of Boston-based mortgage lender Mortgage Master, said he believes that the government should make those lower interest rates permanent, but five years is better than a shorter period.
"A five-year modification is better than a six-month modification," he commented.
Sommer also said he believed the Treasury's time frame was set because government officials are hoping the financial system will stabilize by then.
The program also requires quarterly meetings to monitor the program among the Federal Deposit Insurance Corp., Housing and Urban Development Department and the Federal Reserve.
In another smaller, separate program to be announced Wednesday, funding of $1.5 billion would be provided to help renters displaced by foreclosure to relocate and $2 billion to stabilize neighborhoods that are experiencing high levels of foreclosure.
The Obama mortgage plan
Below is a list of key elements of the plan outlined Wednesday by President Obama that aims to aid as many as 9 million households in fending off foreclosures:
*Allows 4 million–5 million homeowners to refinance via government-sponsored mortgage giants Fannie Mae and Freddie Mac.
*Establishes $75 billion fund to reduce homeowners' monthly payments.
*Develops uniform rules for loan modifications across the mortgage industry.
*Bolsters Fannie and Freddie by buying more of their shares.
*Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities — a $50 billion increase.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
By Ronald D. Orol, MarketWatch
Last update: 2:38 p.m. EST Feb. 18, 2009
WASHINGTON (MarketWatch) -- The White House unveiled a plan Wednesday to help 9 million "at risk" homeowners modify their mortgages, committing $75 billion of taxpayer money to back the initiative.
The plan contains two separate programs. One program is aimed at 4 million to 5 million homeowners struggling with loans owned or guaranteed by Fannie Mae or Freddie Mac to help them refinance their mortgages through the two institutions.
A separate program would potentially help 3 million to 4 million additional homeowners by allowing them to modify their mortgages to lower monthly interest rates through any participating lender. Under this plan, the lender would voluntarily lower the interest rate, and the government would provide subsidies to the lender.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: 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," President Barack Obama said.
Homeowners that have Fannie Mae or Freddie Mac loans, who are having a difficult time refinancing and owe more than 80% of the value of their homes, would be eligible to refinance with this program. Even if homeowners with Fannie or Freddie loans have negative equity on their mortgages, they can qualify for this refinancing program. The program would only help homeowners occupying the property, not individuals who own property as investors.
To help fund the program, the Treasury Department is hiking an existing funding commitment to Fannie Mae and Freddie Mac. It will buy $200 billion of Fannie and Freddie preferred stock, up from its previously preferred stock purchase agreement of $100 billion. It also will buy more mortgage securities backed by Fannie Mae and Freddie Mac, raising the total to $900 billion, up from $850 billion previously.
Fannie and Freddie own or guarantee more than 30 million mortgages, or almost 60% of all single-family loans, according to recent estimates.
Under the $75 billion modification program involving government subsidies to lenders, the lenders will be responsible for bringing down interest rates so that a borrower's monthly mortgage payment is no more than 38% of pretax income. After that, the government program would match the amount reduced by the lender to bring a homeowner's payments down to 31% of pretax income.
Should a lender have a difficult time getting a homeowner's payment down to 31% of pretax income by lowering its interest rates, it can also lower the principal owed on the mortgage and take advantage of government assistance.
As part of the $75 billion initiative, servicers will receive $1,000 for each successful modification, as well as additional government funding for each month the borrower stays current on its loan. Homeowners can also receive $1,000 a year for five years as part of the program, as long as they stay current on their loan payments.
The program also provides additional incentives to lenders who modify at-risk loans before the borrower falls behind. The program takes effect March 4.
Loan servicers owned by financial institutions that receive government assistance from the remaining funds in the bank bailout bill would be required to implement "loan modification plans" based on Treasury guidance.
Henry Sommer, director at the National Association of Consumer Bankruptcy Attorneys, said he believes the incentives should encourage servicers to participate in the program. However, he added that even with the program, mortgage servicers may not have the staffing and resources to adjust a critical mass of troubled mortgages.
"It puts servicers in a better position to participate, but I still worry about staffing," Sommer
commented.
Obama traveled to a hard-hit Arizona community Wednesday to announce details of the program. He and Housing and Urban Development Secretary Shaun Donovan discussed their plan in Mesa, Ariz., a suburb of Phoenix that has been reeling from the housing-industry meltdown and economic slowdown.
Mesa -- Arizona's third-largest city -- saw its median home price fall 35% over the past 12 months to $140,000 in January. More than 300 families lost their homes to foreclosure there in January.
Funding
For the $75 billion program, $50 billion will come from the remaining $350 billion in Troubled Asset Relief Program funds, and $25 billion will come from Fannie Mae and Freddie Mac, according to a Treasury official.
Obama plans to package this approach within a larger housing bill that lets bankruptcy judges alter mortgages and lower interest rates for troubled homeowners. Such a provision was approved by the House Judiciary Committee last month. House Speaker Nancy Pelosi, D-Calif., said "Congress stands ready" to act on the committee's legislation.
Sommer said bankruptcy-judge authority would be the only way to provide serious help to troubled homeowners that have second loans. "These second lien loans were very prevalent in many problematic markets."
Citigroup Inc. has endorsed this approach, though other banks have yet to do so.
The new lower interest rate must be kept in place for five years. Leif Thomsen, chief executive of Boston-based mortgage lender Mortgage Master, said he believes that the government should make those lower interest rates permanent, but five years is better than a shorter period.
"A five-year modification is better than a six-month modification," he commented.
Sommer also said he believed the Treasury's time frame was set because government officials are hoping the financial system will stabilize by then.
The program also requires quarterly meetings to monitor the program among the Federal Deposit Insurance Corp., Housing and Urban Development Department and the Federal Reserve.
In another smaller, separate program to be announced Wednesday, funding of $1.5 billion would be provided to help renters displaced by foreclosure to relocate and $2 billion to stabilize neighborhoods that are experiencing high levels of foreclosure.
The Obama mortgage plan
Below is a list of key elements of the plan outlined Wednesday by President Obama that aims to aid as many as 9 million households in fending off foreclosures:
*Allows 4 million–5 million homeowners to refinance via government-sponsored mortgage giants Fannie Mae and Freddie Mac.
*Establishes $75 billion fund to reduce homeowners' monthly payments.
*Develops uniform rules for loan modifications across the mortgage industry.
*Bolsters Fannie and Freddie by buying more of their shares.
*Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities — a $50 billion increase.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
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