Details of Home Mortgage Assistance Plan

Details of President Obama’s plan to help struggling homeowners was announced today. This plan was announced a few weeks ago as the Making Home Affordable initiative. From the details which were announced today this plan helps two types of homeowners  and applies only to primary homes. This means you can not expect any help on your second (vacation) home or your investment property. To qualify you need to be either delinquent on your mortgage or be upside down on your home (owe more than your home is worth). The program applies to loans made on or before Jan. 1, 2009.

Here is how you can qualify if you are delinquent(or 60 days past due) on your mortgage:

  • You must have lost your job, suffered a pay cut or face higher mortgage payments.
  • You must meet the strict financial hardship guidelines of Fannie Mae or Freddie Mac
  • These guidelines mandate you fully document your income with pay stubs, tax returns and sign an affidavit attesting to “financial hardship
  • You need to go for counseling if your total household debt — including auto loans, credit cards and alimony — totals more than 55% of your income.
  • Your homes unpaid principal balance can not exceed $729,750
  • Have a Fannie or Freddie Mac loan (call your loan servicer to find out)

For those who are upside down on their mortgage the government will help refinance the loan in an effort to lower payment and make the home more affordable. Uncle Sam is willing to lend as much as 105% of your home’s market value. Now, I’m not sure how many people can benefit from this because many people are way above that level these days. Especially in the Greater Phoenix Metro area. The best way to start the process is by calling your mortgage loan servicer. They are the ones that will decide whether you qualify or not because the government has given them a financial incentive to help you.

Here are some additional things to consider (from the NYTimes):

A mortgage lender or mortgage-servicing company would first receive cash incentives to modify a borrowers’ loan so that the monthly housing payment declines to no more than 38 percent of the family’s gross monthly income. At that point, the government would match, dollar for dollar, the lender’s cost in reducing the payments as low as 31 percent of monthly income.

The reduced payments could come in the form of a lower interest rate, longer mortgage term or a reduction in the principal outstanding loan amount. The lender would have to make a calculation on whether its cost from reducing the monthly payments, after accounting for the government’s cost-sharing, would be less than the costs it would incur from foreclosing on the house.

The guidelines indicate that a lender would have to make the loan concessions if the subsidized cost of doing so would be lower than the cost of foreclosure. The decision would become voluntary if the estimated costs of the concessions appeared to be higher than the cost of foreclosure. If the lender decided not to offer the modification, such as in the case of a borrower who had become unemployed and whose income had largely disappeared, it would be required to examine alternatives to foreclosure before seizing the house.

The program will run until Dec. 31, 2012.


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Interest Credit Affects Your First Mortgage Payment Due Date

A common question people ask me when I’m working on a loan is the date of their first payment. The way mortgage payments work, you make your payment at the end of the month. This is different than rent, where you pay at the beginning of the month.  Meaning, you pre-pay for the month to come when you pay rent, but when you make your mortgage payment you’re paying for the month that just passed. The difference is that you’re paying interest on money you’ve borrowed when you make your mortgage payment. Naturally you don’t owe the payment until the money has been used and interest is due. This is oftentimes a very confusing concept for borrowers but is important to understand as it affects the date of your first mortgage payment.

You have pre-paid interest as part of your closing costs at the close of escrow. This is essentially your daily interest rated times the number of days remaining in the month. So, if you close in the 16th of the month (in a month with 30 days), you would have 15 days of interest due at the end of that month. Instead of asking you to make a payment that month, lenders will just ask you to pay upfront at close. This results in your first mortgage payment being due the 1st of the following month. So, if you closed on September 16th, your first payment would be due November 1st.

However, there is a feature called interest credit – where if you close within the first seven days (varies from lender to lender), instead of charging pre-paid interest the lender will give you an interest credit back for the number of days in the month. So, if you closed on the 4th – you would get four days of interest credit back at close. This of course results in you having to make your first mortgage payment at the end of the month. So, if you closed on September 4th and you received four days interest credit, your first payment would be due October 1st. A whole month earlier than in the prior example.

Be aware that you do have a choice on whether or not to accept an interest credit – but you need to mention this to the bank. Either way you’re paying – whether it is at close or in the form of a mortgage payment, but you need to be prepared. Purchasing a home entails lots of charges, so its easy to run into a cash flow problem if you are closing at the beginning of the month and your first payment is in a few weeks. The first payment is not one you want to miss – not that you want to miss any payment at all.

$300,000,000,000.00 Rescue Package Passed

Early in my mortgage career a sales veteran once told me that the best way to solve a customer problem was to throw money at it. I guess this is an even better solution when you’re the ones printing money.

Full story “Housing rescue plan passes key Senate test“.

My opinion:

Congress spending like a drunken sailor

Just to put things in perspective, I thought I’d put the faces of the folks who’ll be stuck with the bill:

Babies will pay our bill

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.