Upon reading the fact sheet, it is clear that a portion of the proposal deals with underwater homeowners. Here's the example it uses to illustrate the proposal:
- A borrower has a non-GSE mortgage originated in 2005 with a 6 percent rate and an initial balance of $300,000 – resulting in monthly payments of about $1,800.
- The outstanding balance is now about $272,000 and the borrower’s home is now worth $225,000, leaving the borrower underwater (with a loan-to-value ratio of about 120%).
- Though the borrower has been paying his mortgage on time, he cannot refinance at today’s historically low rates.
- Under the President’s legislative plan, the borrower would be eligible to refinance into a 4.25% percent 30-year loan, which would reduce monthly payments by about $460 a month.