The $75 billion Homeowner Affordability and Stability Plan, which President Barack Obama unveiled moments ago in Arizona, carries two components that directly target foreclosure problems stifling Charlotte's housing market and economy.
Headlining the proposal is a plan that would provide incentives to lenders to cut monthly mortgage payments on troubled mortgages. If a lender agrees to modify a mortgage so that payments are no more than 31 percent of a homeowners income, the government will make up some of the gap between the old payments and new payments.
Why would lenders agree to participate? Doing so will help prevent the foreclosures that were at the heart of the current financial crisis, the White House says. But just in case that's not enough motivation, mortgage servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative, the White House says. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
Another key part of the plan: a new program aimed at helping homeowners said to be "under water" — owing more in principal than their home in currently worth. Such mortgages have traditionally been almost impossible to refinance. But the White House said its program will help 4 to 5 million families do just that by loosening restrictions on those loans.
Details on how to participate in these programs will come within the next two weeks.
Both components could especially benefit cities like Charlotte, where foreclosures struck not because of a burst housing bubble or job losses, but because homebuyers were offered and accepted mortgage terms they ultimately could not afford.
Those homebuyers are largely located in a crescent of starter-home neighborhoods that threatens to squeeze the city's economy from its perimeter. Already, the damage has rippled into surrounding neighborhoods, where property values are dropping. Even stable neighborhoods/markets are stagnant throughout Charlotte, in part because people are unable to move in without selling their homes in potentially troubled areas.
Said Obama: "In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen."
An important note for this banking town: Obama said his administration would "continue to support" reforming rules to allow judges to alter the terms of mortgages in bankruptcy proceedings. Lenders have bristled at this possibility.
How forcefully will Obama back such legislation? The threat of such support might be enough to convince lenders to take part in the proposal made today.