President Obama recently implemented a mortgage relief plan called the Homeowner Affordability and Stability Plan. As I researched President Obama’s mortgage relief plan I found a majority of the information provides a great broad overview but neglects to explain the ground level elements that each borrower should understand when considering a loan modification. My intent in this post is to outline those basic facts and thereby enable individuals to take control and get the financial relief that’s available.
The Homeowner Affordability and Stability Plan aims to help up to 9 million struggling homeowners. The plan has set aside $275 billion to help homeowners in one of two ways, through refinancing or through a loan modification. I will breakdown the basic facts you need to know under each plan.
REFINANCING:
The White House provided an Executive Summary of the Homeowner Affordability and Stability Plan. In it, President Obama’s administration describes the need to help individuals refinance:
“Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates.”
The Mortgage Relief Plan makes a simple change the rules and allows individuals to refinance at the market’s current rates even if they owe up to 105% of their homes value.
To find out if you are likely to qualify for refinancing under the plan it is easiest to go through this checklist.
□ Is this your primary residence?
This can include 1-4 unit homes, condominiums, and manufactured homes.
□ Is your Loan owned or guaranteed by Fannie Mae or Freddie Mac?
You can find out by going to http://loanlookup.fanniemae.com/loanlookup/ or https://ww3.freddiemac.com/corporate/, or by calling 1-800-7FANNIE or
1-800-FREDDIE, or you can contact your loan service provider.)
□ Are you current on your loan payments?
Current means that you haven’t been more than 30 days late on your mortgage payments in the last twelve months.
□ Do you currently owe less than 105% of the value of your home?
Without obtaining an appraisal it is difficult to know home’s value but there are several places to find a pretty good estimate. Zillow.com provides estimated home values based upon sales of similar homes in your area. The State of Arizona recently sent out notices of assessed tax values. These sources can provide some understanding of what percentage of your home’s value you owe.
□ Do you have a stable income?
In order to qualify you must have some stable income.
LOAN MODIFICATION:
The Whitehouse’s Executive Summary states that “the Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels.” In the past banks have been unwilling or financially unable to modify loans, but now, due to the fallen home prices it is often financially irresponsible for a bank to foreclose upon a home if some reasonable modification can be made to the loan. In addition to the poor housing market President Obama’s Mortgage plan provides specific financial incentives to banks who work with individuals in obtaining loan modifications.
Again, to find out if you are likely to qualify for a loan modification you can use the following checklist.
□ Is this your primary residence?
Your primary residence can include 1-4 unit homes, condominiums, and manufactured homes.
□ Did you obtain your mortgage on or before January 1, 2009?
□ Is the unpaid principal balance equal to or less than?:
$729,750 (1 Unit)
$934,200 (2 Units)
$1,129,250 (3 Units)
$1,403,400 (4 Units)
□ Can you demonstrate significant hardship such as a loss of an income?
If you have liquid assets that can be used to pay your mortgage you will not qualify.
□ Can you sustain a mortgage payment that is 31% of your gross income?
If you can answer yes to all of these questions you may qualify. The key to modifying your loan is demonstrating for the bank that a reasonable reduction is feasible. Now, the Federal Government will step in and help individuals reach that threshold. Under the plan loans should be modified so that the payments on principal, interest, taxes, insurance and HOA payments total 31% or less of the borrower’s gross income. The government will then provide additional funds to the bank increasing the amount that the bank would receive to 38% of the borrower’s gross income.
In addition to providing banks with some extra fund on each payment the Federal Plan will pay $1,000 on your principle per year for up to five years. In order to receive this benefit you must remain current on the modified loan.
There are additional aspects of the Homeowner Affordability and Stability Plan which are not covered here. As I noted above I hope that this serves to inform those individuals who may be wondering if they qualify for help under the new Mortgage Plan. Below are some additional links which may help you understand the process and the implementation of the Plan.
The White House: Homeowner Affordability and Stability Plan. Executive Summary:
http://www.treasury.gov/press/releases/tg33.htm
Three Example Cases provided by the Federal Government: http://www.treas.gov/initiatives/eesa/homeowner-affordability-plan/HousingExampleSheet.pdf
Freddie Mac’s Eligibility for Refinance Questions and help with the process:
http://makinghomeaffordable.gov/refinance_eligibility.html
You can always visit our WEBSITE to learn more about loan modification and other options.