Help For Loan Modifications, Refinancing

In effect starting March 4, 2009, the Homeowner Affordability and Stability Plan involves two programs aimed at helping millions of homeowners who are making a good-faith effort to stay current on their mortgage payments.

1. Affordability

This program is designed to help 4 to 5 million working homeowners who have "conforming" mortgages (guaranteed or owned by Fannie Mae and Freddie Mac), who have been on time with their payments, but who have been unable to refinance to a lower interest rate because their homes have decreased in value such that their equity is less than 20%. The objective of this plan is to help these borrowers refinance into safer, more-affordable fixed-rate loans.

Features and qualifications:

• Allows eligible homeowners to refinance their homes to a 15-year or 30-year fixed-rate loan according to Treasury Department guidelines.
  
  
• Available for qualified principal residences, second homes, small rental properties.
  
  
• First-lien loans must have an unpaid principal balance of $729,750 or less (for single-family homes). There is no minimum or maximum loan-to-value ratio for eligibility purposes.
  
  
• Eligible homeowners must have sufficient income to make the new payment.

Your lender (or loan servicer) can tell you whether your current mortgage is owned or guaranteed by Fannie Mae or Freddie Mac and whether you can qualify for this opportunity.

2. Stability

This program aims to help 3 to 4 million "at risk" homeowners who have high mortgage debt compared to income and/or who are "underwater" (with a combined mortgage balance higher than the current market value of the home). The primary objective of the plan is to help borrowers avoid foreclosure by modifying unaffordable loans to achieve a payment the borrower can afford. Delinquency is not required for eligibility. The government has set aside $75 billion in funding to support the program.

• Homeowners can seek a loan modification from their participating lender (or loan servicer).
  
  
• Your monthly mortgage payment must be greater than 31% of your monthly gross income.
  
  
• If you have more than one mortgage on the home, only the first mortgage is eligible for modification.
  
  
• Homeowners with total "back end" debt (which includes not only housing debt, but other debt such as car and education loans and credit-card debt) equal to 55% or more of their income will be required to agree to enter a HUD-approved counseling program (at no cost to the homeowner) as a condition for the loan modification.
  
  
• The participating lender voluntarily lowers the interest rate so the monthly mortgage payment is no more than 38% of the homeowner’s pre-tax income. (Loan servicers owned by financial institutions that receive money from the second distribution of bailout funds will be required to make loan modifications according to Treasury Department guidelines. Loan modifications are considered on a case-by-case basis.)
  
  
• The government will provide a number of incentive fees to lenders and loan servicers along with a partial guarantee initiative (insurance fund) designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall further.
  
  
• The lender must keep the new lower interest rate in place for five years, after which it could gradually be stepped up to the conforming loan rate that was in place at the time of the modification.
  
  
• The government will provide a number of incentive fees to lenders and loan servicers along with a partial guarantee initiative (insurance fund) designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall further.
  
  
• To provide extra incentive for borrowers to keep paying on time, the initiative provides a monthly balance reduction payment that goes straight toward reducing the principal balance of the loan. As long as a borrower stays current on the loan, he or she can receive up to $1,000 each year for five years.
  
  

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