President Barack Obama announced a $75 billion plan to ease the epidemic of home foreclosures Wednesday. Here's what's in the plan for you:

QHow does the refinancing program work?

AStrapped borrowers who have existing conforming loans can apply for a refinance through their existing lender. If they meet the program requirements, including that they occupy the home and can document their income, their lender may be able to offer a lower-interest-rate loan backed by Fannie Mae and Freddie Mac.

QHow does that help people?

ACurrently, many borrowers whose homes have lost value because of the housing market collapse do not qualify to refinance into lower-rate mortgages because they do not have enough equity in their homes. Under this program, borrowers with conforming loans will be eligible to refinance through Fannie Mae and Freddie Mac even if they have little or no equity in their homes.

QIf they're making their payments on time, why do they need help?

AThe administration wants to bring stability to the housing market without rewarding people who made greedy or irresponsible financial choices. By refinancing people who are making payments on mortgages larger than their homes are now worth, the government will reward people who play by the rules and reduce the likelihood that creditworthy borrowers will "walk away" from underwater mortgages. The administration believes that will help put the brakes on the vicious cycle by which plummeting home prices lead to more foreclosures, which further reduce home values for everyone in a community.

QWhat about people with "jumbo" mortgages?

ASorry. The administration plan does nothing for people with mortgages larger than the conforming loan limits set by Fannie Mae and Freddie Mac. They note that "jumbo" loans account for 2 percent of mortgages issued nationwide.

QWhat about helping borrowers with problems on second mortgages?

ASorry again. Any modification or refinancing would apply only to the primary mortgage.

QHow does the loan modification program work?

AThis program is only for "at-risk" borrowers who are struggling with mortgage payments above 38 percent of their income. Under the program, if the lender agrees to lower the interest rate or reduce principal to bring the payment to 38 percent of the borrower's income, the government will pay half of the additional cost to the lender to reduce the payment to 31 percent of the borrower's income.

QWhen do the new programs take effect?

ADetails will be released March 4, but administration officials said the new programs are in effect immediately. Much of the plan does not require congressional approval.

mreynolds3@tribune.com

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Tax Credit Versus Tax Deduction

It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!

According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

More good news – there is an extension on the additional tier of conforming loan amounts which had been first established in 2008.  This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750.  These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard “jumbo” loan rates.

Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section to increase energy efficiency, including new insulation, windows, and frames.

Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future
Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage.

According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.  Let me know if you want a summary of this information.

While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future.

As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.