There has been a lot of news coming out of Washington lately about the housing and foreclosure crisis. I get many questions from people who want to know if they "qualify" for help. That's why I am 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 might qualify. On March 4, 2009 we finally were given the "details" everyone has been waiting to hear. Please keep in mind that this is just a summary and that there are additional details. You can learn more about the plan by going to the US Government website: www.financialstability.gov.
The new initiative is being called "Making Home Affordable" (also known as MHA); here's 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 bit crazy, even for real estate and finance professionals.
There are essentially 2 parts to the program: The first is a plan to refinance eligible mortgages and it is being referred to as "Home Affordable Refinance". The other part deals with loan modifications and is known as..."Home Affordable Modification". It's just a matter of time until these are called "HAR" & "HAM".
First the HAR (Home Affordable Refinance):
- The current mortgage must be owned or guaranteed by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). If you are not sure if your mortgage meets this first requirement, you can call (800) 7FANNIE or (800)7FREDDIE between 8am - 8pm EST.
- The property MUST be your primary residence. Second Homes and Investment Properties do not qualify.
- The borrower(s) have sufficient income to qualify.
- The mortgage must be up to date with no 30 day delinquencies in the last 12 months.
- 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.
- If there are additional mortgages (Second Mortgage, Home Equity Line of Credit, or other liens), the other lien holders must be willing to subordinate their liens in writing to the new first mortgage. Subordinate simply means that the first mortgage will retain it's superior lien position. It is OK if the total owed exceeds 105% of current value, as long as the first mortgage refinance does not exceed the 105% rule.
- The program officially started 3/4/2009.
Now comes the HAM (Home Affordable Modification):
- To be eligible, the Lender must be willing to participate. Investor/Lender & Servicer participation is voluntary on their part.
- The intention of the program is to avoid foreclosures whenever possible. Each case is evaluated separately and borrowers must prove that they can afford the modified payment. There must be a steady source of income to be eligible.
- There must be a documented financial hardship to qualify.
- The current monthly PITI (Principle, Interest, Taxes, & Insurance Total) must exceed 31% of the borrower(s) gross monthly income. No jokes allowed about the "PITI" acronym.
- The borrowers do not need to be current on the monthly payments. Again, each situation is unique and will be evaluated on a case-by-case basis.
- The goal of the plan is to reduce the total housing PITI payment for all mortgages to no more that 31% of gross income. This includes any second mortgages or HELOCS who must be willing to participate and subordinate their liens to the new modified mortgage.
- The subject first mortgage must be for the Borrower's primary residence. Second homes and investment properties are not eligible.
- The subject mortgage must have been made before 1/1/2009 and it cannot exceed $729,750. I am sure there is a reason that they used $729,750 as the maximum, but I cannot find any information about how the government arrived at this amount.
- The payment reduction will be achieved by reducing the interest rate, extending the term of the loan, or by a principle reduction (last resort). Remember, this is voluntary on the lender/investor and/or servicer's part.
- Modifications are for a 90 day "trial" period. If the borrower(s) honor all of the terms during the 90 day trial, then the modification will be extended for a term of no less than 5 years.
- Beginning in year 6, the interest rate can be increased by no more than 1% per year until the note rate reaches the "Freddie Mac Primary Mortgage Market Survey Rate" on the date that the modification is executed.
Since this article was intended to be a "brief" general summary of the "highlights", I will stop here. There are additional terms and conditions that can be found at www.financialstability.gov.
Let's all hope that this new initiative is more successful than the Hope for Homeowners Program (H4H) that started October 1, 2008. The following article was published recently by Time Magazine:
The Plan: Enacted on Oct. 1, Hope for Homeowners was to be the main foreclosure rescue plan from Congress, which allocated $300 billion for the effort. Supporters in Congress, like Massachusetts Representative Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance into lower-cost loans by cutting the amount they owed, which for many at-risk-of-default homeowners was more than their 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 started, but none 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 the one they have. What's more, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, has signed on to the loan-principal-reduction program - which gives Hope for Homeowners little chance of being successful anytime soon. "Foreclosure is the problem we have to spend a lot more effort trying to solve," says the Economic Policy Institute's Robert Scott. "We need to put a floor under housing prices, and stopping foreclosures is the way you do that."
Please keep in mind that this is my interpretation of the guidelines and that all information should be independently verified. Finally, please remember...since this is a government program, all rules and guidelines are subject to change. Stay tuned.......and make it a great day!