This is a suggested plan to help every citizen of the USA whose current mortgage obligation exceeds the value of their primary home.
Principle no 1: No household should pay a housing cost (mortgage payment: principal + Interest only) that exceeds 30% of their gross income( before any deductions) as reported on their latest Federal Tax Return.
Principle no 2: The Federal Government will refinance through Fannie Mae and Freddie Mac(buy existing mortgage and reissue a new mortgage to homeowner) existing homeowners who are under water with their mortgage on primary residences.
Principle no 3: New mortgages issued under this program, based on household ability to pay, will contain a provision that allows FNMA/FHLMC to recover on sale of secured property, 80% of the difference between the nominal value of the new mortgage issued and the then sale price of the property, until full amount of original refinanced mortgage is recovered. These agencies will be allowed to charge a 0.5% fee in addition to 30yr treasury rate to cover cost of implementing program.
Principle no 4: FNMA/FHLMC will be allowed to continue to repackage these new mortgages in CMO’s etc for resale through traditional resale channels.