PhotoThe Obama Administration has announced a new government program to help underwater homeowners – those who owe more than their homes are worth.

The plan is narrow in scope and will only benefit about 1 million homeowners. Whether you are one of them depends on whether you fall into a number of set categories.

First, this is not a mortgage modification program. The government's efforts to help struggling homeowners avoid foreclosure have been less than a resounding success. Rather, this is a refinancing program.

There are many consumers, for example, who purchased homes at the height of the bubble at the prevailing interest rates of the time, between 6 and 7 percent. They may have good jobs and sterling credit, but they have not been able to refinance their 6.5 percent mortgage to the current 4.5 percent rate because the house they purchased for $500,000 is now worth $350,000.


But not everyone in this category can take part in the new program. To qualify, you must meet all of the following criteria:

  • Your loan must be included in the portfolios held by Fannie Mae and Freddie Mac
  • Fannie and Freddie must have acquired your loan before May 31, 2009
  • Your current loan must be for more than 80 percent of your home's present value
  • You must have made six consecutive monthly mortgage payments (in other words you can't be delinquent)

If you meet these criteria, chances are you can qualify, no matter how far underwater you are. Why would lenders agree to refinance for significantly more than a home is worth? If they do, the government will eliminate their responsibility for problems with the original loan, a significant incentive.

The administration sees the payoff as more homeowners with lower monthly payments, allowing them to spend the money on other things, thus helping the economy. If you think you might qualify, start by discussing it with your loan servicers. Just keep in mind that it may take several months for the program to be launched.

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