Foreclosure Rescue Plan is Published on 4-3-2009 by the Obama Administration – What can it do for you?
Summary of Obama’s Foreclosure Rescue Program
There has been a lot of news coming out of Washington lately about the housing crisis and foreclosures. I get a lot of questions from people who want to know if they “qualify” for help. That’s why I’m going to briefly explain the highlights of President Obama’s plan to reduce foreclosures. It is estimated (by the government) that this plan will help up to 9 million homeowners. According to the Mortgage Bankers Association, there are about 51 million first mortgages in the United States, which means about 18% of the total could qualify. On March 4, 2009 we finally received the “details” everyone has been waiting to hear. Please note that this is only a summary and there are additional details. The new initiative is called “Making Home Affordable” (also known as MHA); Here are just a few of the government acronyms to keep track of: TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, etc. It’s starting to get a little crazy, even for real estate and finance professionals.
Basically, the program consists of 2 parts: the first is a plan to refinance eligible mortgages and is known as “Affordable Home Refinance.” The other part deals with loan modifications and is known as…”Affordable Home Modification”. It’s only a matter of time until these are called “HAR” and “HAM”.
First the HAR (Home Affordable Refinancing):
o Current mortgage must be owned or guaranteed by Fannie Mae (FNMA) or Freddie Mac (FLHMC). If you’re not sure if your mortgage meets this first requirement, you can call (800) 7FANNIE or (800)7FREDDIE between 8 am and 8 pm EST.
o The property MUST be your primary residence. Second homes and investment properties do not qualify.
o Borrowers have sufficient income to qualify.
o Mortgage must be current with no 30-day delinquency in the last 12 months.
o The first mortgage cannot exceed 105% of the current market value. Example: If the property is worth $100,000, the maximum that can be owed is $105,000.
o If there are additional mortgages (second mortgage, home equity line of credit, or other liens), the other lienholders must be willing to subordinate their written liens to the new first mortgage. Subordinate simply means that the first mortgage will retain its senior lien position. It’s okay if the total owed exceeds 105% of current value, as long as the first mortgage refinance doesn’t exceed the 105% rule.
o The program officially started on 4/3/2009.
Now comes the HAM (Home Affordable Modification):
o To be eligible, the Lender must be willing to participate. The participation of the Investor/Lender and Administrator is voluntary on their part.
o The intent of the program is to prevent foreclosures whenever possible. Each case is evaluated separately and borrowers must demonstrate that they can afford the modified payment. There must be a steady source of income to be eligible.
o There must be a documented financial hardship to qualify.
o Current monthly PITI (Principle, Interest, Taxes and Total Insurance) must exceed 31% of the borrower’s gross monthly income. Jokes about the acronym “PITI” are not allowed.
o Borrowers do not need to be current on monthly payments. Again, each situation is unique and will be evaluated on a case-by-case basis.
o The goal of the plan is to reduce the total PITI home payment for all mortgages to no more than 31% of gross income. This includes any second mortgages or HELOCS that you must be willing to participate in and subordinate your liens to the new modified mortgage.
o The first subject mortgage must be for the Borrower’s principal residence. Second homes and investment properties are not eligible.
o The mortgage in question must have been made before 1/1/2009 and cannot exceed $729,750. I’m sure there’s a reason they used $729,750 max, but I can’t find any information on how the government arrived at this amount.
o The reduction in the payment will be achieved by reducing the interest rate, extending the term of the loan or reducing the principal (last resort). Remember, this is voluntary on the part of the lender/investor and/or servicer.
o Modifications are for a 90-day “trial” period. If borrowers meet all terms during the 90-day trial, the modification will be extended for a period of not less than 5 years.
o Beginning in year 6, the interest rate may increase by no more than 1% per year until the rate on the note reaches the “Freddie Mac Primary Mortgage Market Survey Rate” on the date the modification is executed .
Since this article is intended to be a “short” overview of the “highlights,” I’ll stop here. Additional terms and conditions can be found at http://www.financialstability.gov.
Hopefully this new initiative will be more successful than the Hope for Homeowners (H4H) Program that began on October 1, 2008. The following article was recently published by Time magazine:
Grade: F
The Plan: Signed into law on October 1, Hope for Homeowners was to be the main foreclosure bailout plan by Congress, which appropriated $300 billion for the effort. Supporters in Congress such as Massachusetts Rep. Barney Frank said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance lower-cost loans by lowering the amount they owed, which for many homeowners at risk of default was more than his house was worth.
The Result: So how many people has Hope for Homeowners saved from foreclosure? Zero. There have been 326 applications in the three months since the program began, but not one of those people, let alone the nearly 6 million homeowners who, by some estimates, may face foreclosure in the next few years, have received a new mortgage or a modification. for what they have. Additionally, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, have signed up for the loan principal reduction program, giving Hope for Homeowners little chance of success any time soon. “Foreclosure is the problem we have to spend a lot more effort trying to solve,” says Robert Scott of the Economic Policy Institute. “We need to put a floor under home prices, and stopping foreclosures is the way to do it.”
Please note that this is my interpretation of the guidelines and all information must be independently verified. Finally, remember… since this is a government program, all rules and guidelines are subject to change. Stay tuned… and have a great day!