Against a backdrop of record-low new-home sales, Housing Secretary Shaun Donovan told lawmakers Thursday the lending industry is set to launch the Obama administration's $75 billion foreclosure-prevention program next week.
The Associated Press
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WASHINGTON — Against a backdrop of record-low new-home sales, Housing Secretary Shaun Donovan told lawmakers Thursday the lending industry is set to launch the Obama administration's $75 billion foreclosure-prevention program next week.
Final details will be released Wednesday, but Donovan said the plan will allow borrowers with big debts from car loans, credit cards and unaffordable mortgages to have their home loans modified to lower the monthly payment, even if they are not in default.
Borrowers who owe up to 5 percent more than their home's current value will be able to refinance, as long as their mortgages are held by mortgage-finance companies Fannie Mae or Freddie Mac. Also, loan modifications will be available for borrowers who owe up to 50 percent more than their home's value.
A refinanced mortgage involves a new loan contract, while a modified mortgage involves changes to an existing one, such as extending the time to pay the loan back from 30 to 40 years, or lowering the interest rate.
Testifying before Senate lawmakers, Donovan said "we expect to see large numbers of modifications happen very quickly," and hopes it would cause foreclosure rates to drop as soon as April.
The Commerce Department reported Thursday that new-home sales fell 10.2 percent to a seasonally adjusted annual rate of 309,000, the worst showing on records going back to 1963. It also was weaker than economists expected, and shattered the previous all-time monthly low set in September 1981.
The median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month. The median price is the midpoint, where half sell for more and half for less.
Lower prices, coupled with low mortgage rates, have helped restore affordability in some once-heated markets, but potential homebuyers are still wary.
The average rate for 30-year fixed mortgages this week was 5.07 percent, up slightly from 5.04 percent last week, but still near historic lows, Freddie Mac reported Thursday.
"Lower house prices and affordable mortgage rates have yet to spur housing demand," Frank Nothaft, Freddie Mac's chief economist, said.
Information from AP reporters Julie Hirschfeld Davis and Jeannine Aversa is included in this report.
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