You’ve probably heard a lot about President Obama’s Homeowner Affordability and Stability Plan. He unveiled it last Wednesday in Phoenix and there was a firestorm of coverage about it.
It’s an intensive and comprehensive plan. He plans to put $75 Billion into programs to help homeowners in foreclosure and those that are approaching foreclosure.
Help If You’re Haven’t Missed Any Payments
One of the chief complaints I hear every day is, “why is there no help for people that haven’t fallen behind on their payments?” It’s an understandable question and one that – up until now – has largely went unanswered. Which is crazy considering families that enter loan modifications before they miss any payments are much more likely to complete their workout agreement than those that are behind. Here’s the outline of what’s available if you’re not behind on your payments.
If you have a loan owned by Freddie Mac or Fannie Mae, you may be able to refinance your home if doing so will not exceed 105% of the current market value of your home. You must have sufficient income to support the new mortgage payment and an ‘acceptable’ payment history.
If you have a first and a second mortgage, you can take advantage of the program as long as your first mortgage is less than 105% of the current market value of your property. But this will be dependent on the lender that holds your second agreeing to remain subordinate to the new first mortgage. This means that you will still owe the full amount of your second mortgage.
Refinancing will not, necessarily, lower your payment. If you have an interest only loan or one with an extremely low interest rate that’s about to expire, your payment will almost definitely go up. This is because you’ll be refinanced into a fully amortizing 15 or 30 year mortgage.
Help If You’ve Missed Payments or Are In/Nearing Foreclosure
You do not have to have missed mortgage payments to take advantage of this program…but that’s who it’s primarily aimed at. This program is focused on modifying mortgage loans rather than refinancing them.
You still must have enough income to make the payments of course, so if the economic impact of your hardship isn’t resolved, you’re still out of luck. In addition to income there are other requirements:
1. You must occupy the home as your primary residence
2. You current mortgage payment must be more than 31% of your monthly gross income.
3. Your loan must amount must be below Fannie Mae and Freddie Mac’s lending limits ($417,000 $729,750).
This program (like the refinancing) is only concerned with your first mortgage, so the holder of your second mortgage is going to have to cooperate and play nice.
Bonus: For every month you pay on time after you start this program, the government will pay additional principle payments toward you mortgage. The payments ($1,000) will be applied to your principle balance at the end of each of the first 5 years.
Still No Help for Rental Homes
Like all the other plans introduced, there is no relief for rental homeowners or investors. Your only options remain:
1. Let the home foreclose
2. Sell it
3. Wait for the market to turn around
If you’d like to see what I’ve chosen to do with my rental house, check out the series of articles I’ve started.
What Do Now?
Neither of these programs officially start until March 4th. So your lender won’t be able to help you figure out if you qualify until then. Luckily, most of the lenders in the country have chosen to suspend foreclosures until after the Treasury Department releases their guidance early next month. Check out our foreclosure moratorium articles for more info.
So there’s not a lot you can do right now. Your lender ’should’ contact you after March 4 if you’re able to be helped by this…although I’d recommend calling them on March 4 or 5 instead of waiting on them.
If you’re in foreclosure…and you haven’t been notified that your bank has suspended your foreclosure sale, call them today.
We’ve got two more posts planned this week to discuss:
1. What you’re not being told about the plan
2. What you can do now to take advantage of the plan
We’ll also be posting some links we’ve found that will be very useful as you research.
If you’ve signed up for site updates, you’ll be notified immediately once we post these articles. If you got an e-mail notification of this article, you’re already signed up! If you’d like to sign, you can below.
Update: Go to our Home Affordable Modification Info page to see if you qualify
Tags: fannie mae, freddie mac, government regulation, Home Affordable Modification, Home Affordable Refinance, refinance, workout
February 24th, 2009 at 8:34 pm
If my current mortgage is 490,000 but my home is now valued under 400,000 can I still participate in the program? My current mortgage is with Homecomings. I bought the house in December 2005 for 617,000 and put 20% down and have not missed a payment.
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Todd Temaat Reply:
February 24th, 2009 at 8:53 pm
Thanks for asking!
You can ask your lender if your loan is a Fannie Mae or Freddie Mac loan on or after March 4. If it is (or Homecomings decides they want to participate), you may be able to get your loan modified.
It will depend on whether you have sufficient income to make the payments and whether or not you have a second mortgage that’s willing to cooperate.
We’ll dicuss other gotchas and things to be aware of in our next post so please sign up for our site updates so you don’t miss it.
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