John M. Lee: Obama's Homeowner Plan

I had the honor and privilege of attending a White House briefing this past month to learn about the Obama administration's Making Homes Affordable Program and Homeowner Affordability and Stability Plan.

Gene Sperling, senior counselor to Treasury Secretary Timothy Geithner, addressed us about President Barak Obama's plan to slow down the number of real estate foreclosures and help owners who are in financial difficulties develop plans where they can stay in their homes.

Sperling claims the first step in reviving our economy is to stabilize our housing market. The problems with our economy started with easy credit, which led to a real estate bubble, followed by a collapse in the financial industry and falling home prices. All of this caused the foreclosure problem and resulting in the largest recession we have experienced since the Great Depression.

We are hoping that this is a once in a lifetime event and this is as bad as it gets. Since the issues started with housing and continued with falling prices due to a variety of reasons, Obama's plan starts with curtailing the number of foreclosures and making sure people who are capable of staying in their homes remain in them.

We discussed loan modification plans with Laurie Maggiano, senior policy advisor of the Treasury Department, and vice presidents at Freddie Mac and Fannie Mae.

The plan that was released several weeks ago to help people modify their loans include allowing the loan to value ratio to be up to 105 percent, meaning the loan can be higher than the value of the home; limiting the debt to income ratio to a maximum of 31 percent; lowering the interest rate to 2 percent if necessary; amortizing debt up to 40 years; and forbearing some principal, meaning a balloon payment at the end of the term.

I believe this is a good first step in bringing calm to our real estate market. I spoke to all the major banks and they are on board with this plan. Many of them also echo the fact that they did not have a choice except to work in conjunction with the Treasury to make sure that our economy will pull out of this recession. The Treasury and the Feds are tackling a multifaceted problem that nobody has dealt with before on this scale.

On one hand, the Feds are pumping in excess of $1 trillion into the marketplace and trying to control it so that it does not lead to runaway inflation. They also have to make sure that money is going to the right people and not being misspent. I also was hoping that there was something in their plans that would benefit us directly in San Francisco as most of what we discussed applied much more to lower-priced real estate areas.

It is a double-edged sword; our prices have not plummeted like other parts of the country, so we are fortunate we do not have a high percentage of foreclosures. The only items that would benefit us are setting the conforming loan limit permanently at $729,750 and the effort to lower the interest rates between the former conforming loan limit of $417,000 to $729,750. Most banks have priced rates in this intermediate range very high.

With the Feds pumping money into the system, the major banks are poised to reduce interest rates in this range to about 0.25 percent above the former lower-conforming loan limit.

Also, Freddie Mac and Fannie Mae are working on programs where even if homeowners are not delinquent on their loan, they will be able to refinance to the then-market rate without any income documentation, even if their property values have dropped and they do not meet the loan-to-value requirements.

It was quite a learning experience to be so close to all the major decision makers and I give them credit for reaching out to our marketplace. I believe that with our federal government being aggressive and making our economy their top priority, we will be out of this recession soon!

John M. Lee is the president-elect of the SF Association of Realtors. For questions, call him at (415) 447-6231.