On March 4, the Obama administration announced details of their plan to help homeowners to refinance or modify the terms of their existing mortgage, with an aim to stem foreclosures and the tide of falling home prices across the country.
There are two programs.The Home Affordable Refinance program which is designed to help homeowners refinance into more affordable mortgages, but who are currently unable to do so because the drop in home value pushes the loan-to-value ratio above 80%.Homeowners must be current on payments and their mortgage must be owned by Fannie Mae or Freddie Mac.The Home Affordable Modification program provides guidelines to lenders for restructuring the terms of a mortgage for a homeowner struggling to make payments.The terms of loan modification and the formulas used are very complex, so it's best to just call your loan servicer to inquire about this program.
To be eligible, the property must be your primary residence or a 2-4 unit owner occupied property with a loan originated before January 1, 2009.For a single family residence, the program only applies to first-lien loans with balances up to $729,750.For 2-4 family units, higher balances are eligible. There is no limit to the loan to value ratio for underwriting purposes.
The good news is the feds have also provided incentives for loan servicers, lenders and borrowers in these programs. Servicers receive $1,000 up-front for each loan they modify and an additional $1,000 per year for loans that stay current.There is a one-time bonus of $1,500 for lender/investors and $500 for servicers for modifications made while the borrower is still current.This is a good move because the current practice of most lenders is to wait until the homeowner is at least 60 days late before they will consider modification, thereby forcing the homeowner to get a black mark on their credit report.Homeowners who stay current on payments are eligible for up to $1,000 of principal reduction payments each year for up to five years.
All foreclosures in process will be temporarily suspended pending determination of eligibility for these programs.If it is determined that the borrower is not eligible for either of these programs, the foreclosure process will resume.
All told, this is a solid effort to help those who are struggling.It provides options and incentives for staying in your home, rather than walking away from it, which should help stabilize the housing market. The real problem as I see it is that it doesn't help many homeowners in California because of the loan balance limit of $729,750.How lenders and servicers decide to help those is yet to be seen.