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Obama property relief plan to help 9m struggling property owners

He has committed $75 billion of taxpayer's money to help struggling at risk property owners modify their mortgages.

The help plan is divided into two separate programmes. One is aimed at four to five million homeowners struggling with loans owned or guaranteed by Fannie Mae and Freddie Mac to help them refinance their mortgages through the two institutions.

A separate programme has the potential to help a further three to four million property owners by allowing them to modify their mortgages to lower monthly interest rates through any participating lender.

Under this part of the plan the lender would voluntarily lower the interest rate, and the government would provide subsidies to the lender.

'The plan focuses on rescuing families who have played by the rules and acted responsibly by refinancing loans for millions of families in traditional mortgages who are under water or close to it; by modifying loans for families stuck in subprime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments, President Obama said.

Property owners that have Fannie Mae or Freddie Mac loans who are having a difficult time refinancing and owe more than 80% of the value of their homes, would be eligible to refinance with this programme.

Even if a property owner with Fannie Mae or Freddie Mac loan has negative equity on their home loan, they can still qualify for this refinancing programme.

To help fund the programmes the Treasury Department is hiking an existing funding commitment to Fannie Mae and Freddie Mac. It will buy $200 billion of Fannie and Freddie preferred stock, up from its previously preferred stock purchase agreement of $100 billion.

It also will buy more mortgage securities backed by Fannie Mae and Freddie Mac, raising the total to $900 billion, up from $850 billion previously.

Under the $75 billion modification programme involving government subsidies to lenders, the lenders will be responsible for bringing down interest rates so that a borrower's monthly mortgage payment is no more than 38% of their pre-tax income.

After that the government programme will match the amount reduced by the lender to bring a homeowner's payments down to 31% of their pre-tax income.

Should a lender have a difficult time getting a homeowner's payment down to 31% of their pre-tax income by lowering its interest rates, it can also lower the principal owed on the mortgage and take advantage of government assistance.

As part of the $75 billion initiative, servicers will receive $1,000 for each successful modification, as well as additional government funding for each month the borrower stays current on its loan.

Property owners can also receive $1,000 a year for five years as part of the programme, as long as they stay current on their loan payments.

The programme, which takes effect on March 4, also provides additional incentives to lenders who modify at-risk loans before the borrower falls behind.

In another smaller, separate programme funding of $1.5 billion is to be provided to help renters displaced by foreclosure to relocate and $2 billion to stabilize neighborhoods that are experiencing high levels of foreclosure.