Obama's Mortgage Plan Includes Low-Cost Refinancing, Subsidies

Here are the highlights of President Obama's plan to help troubled homeowners refinance and to reduce the number of foreclosures, obtained moments ago by The Post's Renae Merle:

-- The plan would provide access to low-cost refinancing for 4 million to 5 million homeowners so they could get better interest rates and reduce their monthly payments.

-- It would create a $75 billion "homeowner stability initiative" that essentially is a government subsidy meant to reduce monthly mortgage payments, meant to prevent houses from going into foreclosure. Here are the bullet points of this plan:

* A Shared Effort to Reduce Monthly Payments: For a sample homeowner with payments adding up to 43 percent of his or her monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by more than $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

* "Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. 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.

* Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight toward reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

* Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

* Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund -- to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

-- The plan also includes other proposals, such as a "cramdown" provision -- enabling judges to modify home mortgages without permission of the lender -- that require congressional approval.