Details of Obama's mortgage plan released - Will you benefit?
Today the Obama administration officially released the final details of the mortgage plan that was announced a few weeks ago. Here is a quick summary on what is in the plan and how homeowners can find out if they are eligible for a new loan.
As previously stated, there are two portions to the plan. One portion allows non-delinquent homeowners who have underwater mortgages to refinance to a lower rate, and the second portion allows delinquent homeowners to get a loan modification. Here are the general guidelines.
Making Home Affordable Refinance Guidelines
- The home being refinanced must be your primary residence. This includes 1-4 unit homes, condominiums, and manufactured homes.
- The loan must be secured by Fannie Mae or Freddie Mac. You can find out if your loan is owned by these institutions by calling 1-800-7FANNIE, or 1-800-FREDDIE. You can also find out online at www.fanniemae.com/homeaffordable or www.fanniemae.com/homeaffordable
- You must be current on your mortgage payments. This means that you do not have late payments in the last 12 months.
- All loans that are refinanced will be refinanced into 15 or 30 year fixed rate loans. The interest rate would be based on the market rate on the day of closing. The loans also would not have any prepayment penalties or be a balloon note. Borrower will be responsible for fees associated with the refinance.
- The amount you owe on your first mortgage cannot be more than 105% of the value of your home.
- You also need a stable income to qualify for a new mortgage.
Making Home Affordable Modification Guidelines
- The mortgage in question must be on your primary residence. This includes 1-4 unit homes, condominiums, and manufactured homes.
- You must demonstrate significant hardship such a loss of an income. If you have enough liquid assets to pay your mortgage then you do not qualify.
- The mortgage to be modified must have been originated on or before January 1st, 2009.
- The unpaid principal balance must be equal or less than the following:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Each mortgage can only be modified under the program once.
- If you qualify for the program you can receive a Pay-for-Performance Success Payment that pays for the principal balance on the loan as long as you are current on the payments. You can receive $1,000 per year for up to five years.
- Foreclosures will be suspended while borrowers are being considered for a modification.
- The program targets a front end debt to income ratio of 31%. This means that the loan should be modified so that the borrower's principal,interest,taxes,insurance, and HOA is 31% or less of his or her gross income. The government will allow services to reduce the ratio to 38% and then kick in a cash subsidy to reduce the amount to 31%.
- If the borrower has a back end debt ratio of more than 55% then they are required to speak to a HUD-approved counselor. The back end debt ratio is the total amount of debts the borrower has to pay each month. This includes credit cards, car payments, student loans, and any other obligations.
- The modification will last 5 years. The floor for interest rates is 2% and the cap is the market rate on the day of the modification. If the loan is modified through temporarily lowering interest rates then it would go back up to the market rate after five years.
- No modification fees will be paid by the borrower.
- Current late fees on the delinquent balances will be waived.
- Servicers will be compensated $1,000 for each eligible modification.
- Servicers will also receive a $1,000 per year Pay for Success fee for up to three years. This is payable 12 months from the time the borrower starts the program and makes timely payments.
- Lenders or investors will be paid a $1,500 one time incentive for each successful modification.
The details seem to indicate that the focus is really to help those who cannot currently afford their homes stay in their homes. One thing that I find a bit ironic in these details is that the delinquent borrowers who qualify for the modifications will be able to get $1,000 per year for paying on time while those responsible borrowers who have always paid ontime do not even get a break on the refinancing fees. Anyway, it is estimated that about 9 million homeowners can enroll in this program. If you do qualify for either program you can contact your loan servicer starting today. The official page for this program is at http://www.financialstability.gov/makinghomeaffordable/.