By Mark Huffman
ConsumerAffairs.com
February 18, 2009
If you're a homeowner struggling to make monthly payments and fight off foreclosure, you may have been heartened by the news Wednesday that President Obama has unveiled a "mortgage rescue" plan. But how, exactly, does it affect you?
The Homeowner Affordability and Stability Plan has four key elements:
• Refinancing help for four to five million homeowners who receive their mortgages through Fannie Mae or Freddie Mac;
• New incentives for lenders to modify the terms of sub-prime loans at risk of default and foreclosure;
• Steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages; and
• Additional reforms designed to help families stay in their homes.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly," the President said, "by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments."
If you have been unable to refinance your mortgage because you still owe more than 80 percent of your home's value, the new program will provide the opportunity to refinance, if your current mortgage is owned or guaranteed by Freddie Mac or Fannie Mae. The government believes up to five million homeowners could fall into that category.
The Treasury Department, working with the FHA, the FDIC and other federal agencies, said it will undertake a comprehensive multi-part strategy to prevent millions of foreclosures and help families stay in their homes.
The government is expected to provide clear and consistent guidelines to lenders for modifying loans; it will require strong government oversight of the modification process; and it will require plan recipients follow guidance for loan modification.
Perhaps most significantly, it will allow courts to step in and modify terms of a mortgage if the borrower has declared bankruptcy. However, the government said that option will be reserved for cases "when a borrower has no other options."
Underwater rescue
The plan is also intended to help responsible homeowners who are "underwater" — struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Rather than be faced with foreclosure, they will be allowed to temporarily make "reasonable" monthly payments until the market stabilizes.
You might be eligible for the program if you meet any of the following criteria:
• Focusing on Homeowners At Risk: Anyone with high combined mortgage debt compared to income or who is "underwater" (with a combined mortgage balance higher than the current market value of his house) may be eligible for a loan modification. This initiative will also include borrowers who show other indications of being at risk of default. Eligibility for the program will sunset at the end of three years.
• Reaching Homeowners Who Have Not Missed Payments: Delinquency will not be a requirement for eligibility. Rather, because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
• Common Sense Restrictions: Only owner-occupied homes qualify; no home mortgages larger than the Freddie/Fannie conforming limits will be eligible. This initiative will go solely to supporting responsible homeowners willing to make payments to stay in their home — it will not aid speculators or house flippers.
• Special Provisions for Families with High Total Debt Levels: Borrowers with high total debt qualify, but only if they agree to enter HUD-certified consumer debt counseling. Specifically, homeowners with total "back end" debt (which includes not only housing debt, but other debt including car loans and credit card debt) equal to 55% or more of their income will be required to agree to enter a counseling program as a condition for a modification.
Homeowners will apply for the program through their current lender. Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.
