During the housing boom, a lot of people bought their homes with less than 20% down. With today’s low rates, these homeowners have little or no equity in their properties whereas to refinance into cheaper loans, they generally need 20% equity.

Apparently, from an article I found on Boston Herald, I read that because property value is continueing to decline, homeowners who did buy their home with 20% down find themselves no longer meet the 20% rule to apply for a mortgage refinance.

According to President Obama’s plan to offer an estimated US$4-5million to homeowners in the US, government-backed mortgage giants Fannie Mae and Freddie Mac will be able to waive the 20% rule, to help homeowners avoid foreclosure. They will even allow homeowners to borrow more on a home than it is actually worth in the current market.

According to Federal Housing Finance Agency, Obama’s plan is a way for the borrower to benefit from lower mortgages in the market.

There are several restrictions, though, in Obama’s plan:

1.) The new loan balance can not exceed the previous balance of the home’s mortgge, except for settlement costs, insurance, property taxes and association fees.

2.) Homeowners with PMI (Private Mortgage Insurance) have to continue paying for insurance coverage while those who have never had PMI won’t have to, even though the value of their homes have fallen.

3.) The program will be closed in June 10, 2010. So if you are thinking of refinancing, it will have to be done by then to qualify.

Obama’s hope with this plan is that it will actually reduce the risk of losses for Fannie Mae and Freddie Mac, although homeowners are refinancing to cheaper loans. This is because the more homeowners are able to pay a lower monthly mortgage payment, the less of them will loose their home into foreclosure.

We will still have to see whether this plan of Obama can actually succeed. But still, since the refinance program is here and now, if you are a homeowner and you have not enough equity in your home to refinance, you should go for it and check out Obama’s program and benefit from it.

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