The Obama administration unveiled an unprecedented plan to directly help homeowners make their mortgage payments. In a dramatic departure from current homeowner assistance programs, this plan would help borrowers before they become delinquent.

Making a significant move to boost confidence in the stability of consumers, many of which are homeowners in the US, President Obama introduces a new approach. The new plan is expected to be a central element in the Obama plan to quickly revive the housing market.

US Treasury Secretary Tim Geithner reportedly has already committed $50 billion of the TARP bail-out funds to this plan.

Although reportedly still under discussion with senior administration officials, the mortgage subsidy plan would allow fearful homeowners to petition for a mortgage payment subsidy prior to missing any payments. Loan modifications and other similar government refinance and FHA assistance programs currently require borrowers to be as much as 90 days past due on mortgage payments.

The new plan would require eligibility testing, but not delinquency. Early indications are that the plan would use current value of the mortgaged home and homeowners current income to assess risk of future default. Based on this eligibility testing homeowners would then be provided this subsidy.

Because of a lack of details on the potential eligibility standards it is difficult to assess how many people would be assisted by such a program. However, nearly 2.3 million Americans fell behind on their mortgage payments in 2008--giving a general magnitude of the instability in mortgage payments and household finances.

There is also broad assumption that Fannie Mae and Freddie Mac would play a significant role in the plan. Furthermore, Federal Housing Finance Agency chief regulator James Lockhart has recently said that the mortgage finance industry is focused on standardizing loan modifications and other homeowner assistance programs.

Late day US market and overnight FTSE reactions show a positive movement in investor confidence in this new approach to stabilizing not only the housing market, but the broad base of consumers that own homes and a struggling to stay current.

Published on February 13, 2009