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After signing a $780 billion-plus stimulus package, President Obama revealed the details of a sweeping $75 billion foreclosure-fighting initiative. Grander in scale than many observers expected, Obama expects his Homeowner Affordability and Stability Plan to save as many as 9 million homes from foreclosure by helping homeowners restructure or refinance their mortgages. On the other hand, the Plan will not, in Obama's words, "help speculators who took risky bets on a rising market" or "reward folks who bought homes they knew from the beginning they would never be able to afford."

The Homeowner Affordability and Stability Plan, set to take effect on March 4, aims to staunch the flood of foreclosures and stabilize falling home values through three key components:

1. Affordability through Refinancing. Under Obama's Plan, 4 to 5 million homeowners will have access to low-cost refinancing into a mortgage at today's low interest rates -- even if their homes are worth slightly less than is currently owed on them. The reduction in rate will reduce the mortgage payment, increasing month-to-month affordability for these families, most of whom cannot currently refinance their homes due to negative equity.

2. Stability through Mortgage Modifications. This, the most striking element of the Plan, reflects a clear departure from earlier governmental policy and industry standard practices in the realm of mortgage modifications. Under the Obama initiative, lenders will be paid a monetary incentive to restructure homeowners' mortgages within the Plan's guidelines. To earn the incentive, lenders must reduce monthly payments to at most 38 percent of the homeowners' income, and can earn increasing incentives for decreasing the payment further.

   Unlike former government and industry plans, the initiative rewards lenders for modifying the loans of homeowners who are not yet behind on their monthly payments, and rewards homeowners who stay current on their mortgage payments post-modification. Additionally, the Treasury Department will implement a single set of standards for loan modifications conducted under the Plan, and every bank that receives bailout monies will be required to adopt similar standards.

3. Keeping Interest Rates Low. This element of the initiative charges Fannie Mae and Freddie Mac with buying more mortgages, and funds that expansion. The goal? To keep mortgage money flowing through this credit-crunched marketplace, making it easier to buy and refinance homes.

Homeowners wondering whether this Plan will go through as many versions or take as long to get through Congress as the stimulus package did can relax -- most elements of the Homeowner Affordability and Stability Plan will be implemented under the President's Executive Powers on March 4th, and are already funded through other recent economic rescue legislation. The one big exception is the "cramdown" power Obama would like to include in the Plan, which would authorize bankruptcy courts to modify home mortgages by reducing the principal amount owed on the loan. Capitol Hill politicos are already gearing up for the battle over whether that provision will become law.

Who benefits from this plan? Only homeowners who occupy their homes can take advantage of this initiative, not investors who don't live in the properties at issue. The mortgage modification element of the Plan applies only to Fannie Mae and Freddie Mac-insured loans -- this does not include the vast majority of subprime mortgages, which comprise a vast portion of the foreclosure-prone mortgages at present. However, the requirement that all bailed-out banks adopt clear Treasury Department loan modification standards may provide a hidden, but massive, benefit to homeowners with subprime mortgages, who have by and large been unable to figure out how to successfully work with their lenders to modify their loans.

More...

• What You Need to Know About Obama's Stimulus Package
• Obama Offers Housing Help in Economic Stimulus Package
• Rescue Programs for Homeowners
• Fighting Foreclosure Guide
• What to Know Before You Refinance