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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Obama’s Homeowner Assistance Plan

CO: Obama signs economic recovery bill in Denver

President Obama was in the Phoenix area today to announce details of the Homeowner Affordability and Stability Plan. I guess the White House considers this area to be near ground zero of the housing bust and hence the area to be most hurting due to the housing downturn.

The plan is to help those who are in genuine need of assistance. The President said, “it will not rescue the unscrupulous or irresponsible and, it will not reward folks who bought homes they knew from the beginning they would never be able to afford.” According to the NYTimes,  “the core of the plan gives banks a financial incentive to reduce many mortgage payments to no more than 31 percent of a borrower’s income.” The Wall Street Journal has a very good summary of the entire bill for those interested.

So who exactly will benefit from this? The White House blog says the exact details of who is eligible will not be announced until March 4. However, the blog does have some answers to key questions, such as for:

Those who owe more than their house is worth:

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

Those with both a first and second mortgage:

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

Interst rate and terms of the new mortgage:

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment.  All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate.

Those who are at risk of losing their homes:

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current.  By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

Those who are in immediate danger of losing their homes:

Contact your mortgage servicer or credit counselor.  Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility.  We support this effort.

Read the full post on the White House blog, there’s a ton of information there. It should answer a lot of your questions.

Creative Commons License photo credit: aflcio2008

Streamlined Loan Modification Now Available

Last week Fannie Mae announced that the Streamlined Modification Program (SMP) would now be available to borrowers. This program is part of an ongoing effort by the GSE to prevent foreclosures. Borrowers of course need to meet certain requirements to participate in the program.

Tammy over at the Arizona Mortgage Team blog has done a nice job putting all the relevant information in one place for borrowers:

Under the Streamlined Loan Modification Program,  your mortgage and escrow payments can be cut to 38 percent or less of an eligible borrower’s gross monthly income by some combination of:

  • reducing mortgage rates
  • extending the mortgage term up to 40 years
  • forbearing on a part of the principal amount until the loan is paid off, then a balloon payment is required

Streamlined Loan Modification Program Eligibility Requirements

  • You must own and occupy the property as your primary residence
  • You must have missed at least three mortgage payments
  • You cannot have filed for bankruptcy

Head on over to her blog to read more.

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