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During the first week of March 2008, President Obama’s plan to help families keep their homes has gotten rolling. The plan will help families by refinancing their mortgages to more favorable terms in an effort to stop the foreclosure situation in this country from spiraling further out of control.

The Housing Reform Plan has three key elements and divides homeowners into 4 distinct groups.

1. Those who own their homes "free and clear."
2. Those whose loan-to-value (LTV) is under 80%.
3. Those whose LTV is between 80% and 105%.
4. Those whose mortgage payments are an unreasonably high percentage of their income.

Group 1 includes 31% of homeowners and a lower total value of all of the housing (approximately 1/4).  This group is not in financial/foreclosure trouble.

Group 2 has an LTV that is not subject to receiving aid under this program.  That have the opportunity to refinance their current mortgages right now and are well-advised to do so, given that mortgage rates are at historic lows.

Group 3 is the core focus of the Housing Reform Plan.  The group with the LTV between 80% and 105%.  Despite likely having an LTV at 80% (or better) when they purchased the home and have been paying their mortgages faithfully during this time, the reality is - the early years of a mortgage don’t allow for a lot of that payment to go towards your principle.  It is primarily interest.  Under normal economic conditions or even with real estate values remaining static, the LTV may only be somewhere in the neighborhood of 75%.  However, in today’s economy, real estate values have plummeted substantially, in some of the largest metropolitan area - as much as 20%!  This backslide has driven LTVs much higher than could have been foreseen.  With these lofty LTVs, homeowners will not qualify for a refinance and that reality is what is driving the foreclosure crisis.

The reason that this magic number of 80% loan-to-value figure is important is because most banks won’t lend at levels that are higher than that.  You may be familiar with the usual requirement for a 20% down-payment on your home.  Most lenders require you to obtain private mortgage insurance (PMI) at figures above 80%.  This was also a requirement for the "GSEs" - which is the term given to those loans purchased or backed by Fannie Mae or Freddie Mac .

If Group 3 could refinance, they would save a lot of money each year.  For instance, a 1% reduction in your mortgage interest rate on a $200,000 loan would save approximately $2,000 per year.  This also takes a little bit of luck as your mortgage needs to be held/backed back Fannie or Freddie.  That’s about half of all mortgages out there and even though that is a requirement, over 4-million families stand to benefit from the reform plan.

Group 4 is comprised of those people close to foreclosure or already in foreclosure proceedings.  The program budgets about $75-billion and uses the GSEs and the Federal Housing Administration (FHA) in an effort to prevent foreclosures.  This group may have been sucked into ARMs with early teaser rates which have adjusted upward.  They may also be people who lied (committing mortgage fraud) by embellishing their income at the time they purchased their homes.  Of course, they may be also one of the untold numbers of people who have recently become unemployed.

The plan is directed only at owner-occupied homes.  Essentially, the existing mortgage holder would have to reduce the payment to 38% of the homeowner’s income, either by reducing the interest rate, extending the term, or by reducing the principal. So, if the homeowner was paying 45% of his income, the first 7% reduction would be on the bank alone. Then the cost to bring the payment down to 31% would be split 50-50 with the government.

In return for these initiatives, lenders would get $1,000 up front and $1,000 per year for 3 years for each mortgage they modified that stayed current. This is where the controversy of the plan lies.  Critics point out that it will tend to reward some homeowners that were irresponsible from the get-go - including those who lied on their original mortgage applications or who were banking on huge increases in their incomes in the future to afford the higher rates after their adjustable-rate mortgages reset.  Supporters contend that if the house next door falls into foreclosure, the value of your house falls significantly.  Multiply the number of foreclosed homes in your neighborhood by 3, 4, or more… and your home’s value will plummet substantially.  It is estimated that this program may help between 3 and 4 million homeowners.

The final element of the plan is to revise the bankruptcy code , so judges can modify the terms of mortgages when the homeowner declares bankruptcy. Lobbyists for the financial industry are irate about this proposal, but their cries scream of hypocrisy.  The priority of this administration is to try to do what is necessary to stop and ultimately reverse this financial debacle.  Currently, only primary residences are excluded from being revised by the judge. That, of course, is almost always the biggest debt that the person filing for bankruptcy has.

First American Corelogic reported that an estimated 8.3 million homes, or almost 25% of all homes with mortgages on them, are currently underwater. If housing prices fall another 5%, an additional 2.2 million homes will slip below the waves. Another 5% decline in home values nationwide is almost a certainty at this point, with a further decline of 10 to 15% highly likely.  That certainly puts this crisis in perspective.

The total value of all homes in the U.S. fell to $19.1 trillion at the end of 2008, from $21.5 trillion at the end of 2007. Half of the total decline in value was in the state of California. Now, not everyone that is underwater is likely to walk away from their house, but there are 2.2 million homes that are deep underwater, with LTV’s of more than 125%. Those folks are very likely to default, particularly if their mortgage payments are eating up most of what they make. These deep and medium-depth (more than 105% LTV) people are the final group and likely won’t be able to be rescued.

In short, this plan will not totally solve the mortgage problem, but it will significantly improve it. To the extent that the rate of foreclosures is slowed, it may have more impact on stabilizing the banks than all the cash that is being thrown at them directly.

Blame can been spread far and wide - on both the lenders and consumers.   The lenders were the ones who were supposed to be and act professionally.  They were the ones making the big dollars.  Unfortunately, some will unjustly benefit some to save the system.  It is far better to have some of the benefits go to the borrowers, rather than it all going to the lenders.

For an ever-increasing number of citizens in this recession, filing for bankruptcy becomes a way of managing the mounting financial crisis, even when it means losing the family home.  It really becomes a matter of survival for faced with this decision.

New legislation proposed in Congress includes provisions that allow bankruptcy judges to cut the principal and interest rates on first-mortgages as well as extend the terms of repayment.  The measure, known as the "The Judicial Mortgage Modification Bill," was approved on March 5th, 2009 by The House of Representatives.  Senate approval is all that stands in the way of making this bill - law.

Still, for too many people, time is of the essence and waiting for this bill to become law is not an option.  They need to obtain relief through the existing bankruptcy system, even though the ability to impact mortgage debt is severely limited - for those trying to keep their homes.  Filing for bankruptcy can delay foreclosure proceedings, but barring a change in circumstances, it is only a matter of time before that process takes hold.

Across the country there has been a 33% rise in personal bankruptcies last year, totaling over 1-million filings, according to the American Bankruptcy Institute . The most common types of personal bankruptcy filings are Chapter 7 and Chapter 13.

Chapter 7 proceedings — virtually wipe out unsecured consumer debt, such as credit card debt, a leading cause of bankruptcy, along with divorce,  unemployment, and medical conditions. Chapter 7 offers mortgage relief only for people who are prepared to surrender their home.

Chapter 13 bankruptcy proceedings, which also can help people reduce, if not totally eliminate, credit card and some other types of debt, - has provisions in place to allow people to get current on overdue mortgage payments.  It does not currently allow for a reduction in principal, interest, or the length of the loan for  first mortgages.  A person will still be required to repay everything.  However, it helps people make up overdue payments, usually over 3- to 5-years, by paying an additional amount with each regular mortgage payment. Please note:  You must  establish, in advance, you have sufficient income to handle such an arrangement.

Consumer advocates like ACORN , are lobbying hard in support of the mortgage relief legislation now before Congress. ACORN claims that banks have not acted reasonably in renegotiating mortgages in the current financial crisis. However, many banks and other financial institutions claim that the legislation would unfairly change mortgage contracts at their expense.  This, at a time when they’re in serious financial trouble of their own.

RealtyTrac Inc. reports that the filings for foreclosure proceedings have increased 30% in February 2009 as compared to this time last year.

In a statement today, RealtyTrac reported that 290,631 homes received default notices, auction notices, or were seized by lenders. First-time foreclosure filings totaled 161,976, the highest figure in over 4-years, according to their records.

As the housing market crisis in the United States continues to worsen, President Barack Obama has put forth a $275-billion rescue plan to help mortgagees with notes that they cannot afford or have been devastated by depressed home values. Plummeting housing values have stolen nearly 2-1/2 trillion dollars from the residential market in 2008. Unemployment’s climb to February’s figures of around 8% are adding gasoline to the foreclosure fire. Unfortunately, President Obama’s latest in a string of bailout plans won’t change the reality for homeowners entering into or already involved in the foreclosure process.

The combined percentage of loans in foreclosure or at least one payment past due in the fourth quarter was just over 11%, the highest on record, according to the Mortgage Bankers Association in Washington. The percentage of loans 60 days past due and 90 days or more late also were at record levels.

On February 18th, 2009 - President Obama introduced a plan to use $75 billion of public funds to encourage lenders to modify or refinance home loans, avoid foreclosures, and bail-out homeowners behind on their mortgages. The President also conveyed that the Treasury Department would provide as much as $200-billion in additional backing for Fannie Mae and Freddie Mac to free up funding for new mortgages.

To qualify for a refinanced loan, applicants will have to fully document income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to Treasury.

Obama announced his plans to help 9 million Americans save their homes in Mesa Arizona today. According to the NY Times, the plan consists of three objectives:

* The first will help homeowners that are current on their mortgages but paying high interest rates and can’t refinance due to lack of equity or upside down loans.

* The second component will help those at risk of foreclosure by providing incentives for lenders to negotiate the terms of the mortgage to lower payments.

* The third component will ensure credit is available for new loans for buyers by giving another $200 billion in financing to Fannie Mae and Freddie Mac

Obama’s plan goes into affect on March 4th which is when all the details will be available for review. The plan gives $75 billion for loan modifications to reduce payments to 31 percent of the borrowers gross monthly income, but if the lenders believe the incentives will cost them more than going through the foreclosure process as normal, they may not agree with the modifications. Part of the plan, which will have to be voted into law, also calls for allowing bankruptcy trustees to change mortgages during the bankruptcy process, giving borrowers more options to keep their home.

The Obama housing plan is not expected to stop all foreclosures including those who bought knowing they could never make the payments, or investors who bought in order to flip the property for a higher price.

Michigan Democrats have proposed a law that would create a mandatory 90 day period after receiving a notice of foreclosure to allow homeowners time to meet with their mortgage lenders in order to negotiate mortgage modification terms.

The 90 day period is designed to force lenders to look at each homeowners position in order to determine if they qualify for to change their mortgage according to federally approved financial standards. If the borrowers qualify, banks and lenders would have to negotiate or go through the courts to foreclose. If the borrower didn’t qualify, the lender could take back the house in a faster process.

With more than 145,000 houses in foreclosure in 2008 and 11,400 foreclosure in January of 2009, the Democrats are trying to give lenders and borrowers options without putting a moratorium on foreclosures which could dry up home loans from banks and bring property values down even further.

For those homeowners that don’t qualify under the proposed guidelines, the 90 day waiting period would give them time to find new living arrangements and any other changes they need to make with the help of a counselor.