New Programs Help Homeowners

By Gerri Detweiler
The Union Credit Doctor

President Obama’s administration has introduced two new programs to assist millions of Americans who are struggling to make their mortgage payments. One helps homeowners refinance into more affordable fixed-rate loans, and another is aimed at getting lenders to modify loans with reasonable monthly payments.

Making Home Affordable Refinancing Program

While mortgage interest rates have remained remarkably low, some homeowners have been unable to take advantage of these low rates because the value of their home has dropped. Many lenders today will not refinance a loan unless the homeowner has at least 20% equity in their home. Even borrowers who have been paying on time for years may find that they cannot refinance due to lower home values.

The Making Home Affordable refinancing program is designed to help an estimated 4 to 5 million homeowners who have higher rate loans, or risky adjustable rate loans, by allowing them to refinance into 15-year or 30-year fixed-rate loans.

You may be eligible to for this program if you meet all of the following qualifications:

• You live in the home you want to refinance. Investment properties or second homes are not eligible, unless you live in one unit of a two to four unit property.
   
• Your mortgage is owned or controlled by Fannie Mae or Freddie Mac. The loan company to which you make your mortgage payment can tell you if that is the case.
   
• You are current on your mortgage payments and you have not been more than 30-days late on a mortgage payment in the last 12 months.
   
• The amount you owe on your first mortgage is about the same or slightly more than the current value of your home. If the balance on your first mortgage is larger than 105% of your home’s value, you will not be eligible.
   
• You can document a stable income large enough to support the new mortgage payments, along with your other debts.

Contact your current mortgage lender or “servicer” (the company to which you currently make your payments) to apply.

It’s a good idea to have some information handy for your lender, including: your most recent pay stub and information about other income you receive, your tax return from 2008 if you have completed it (otherwise have your 2007 tax return handy), details about any second mortgage or home equity line of credit (including the balance you owe), and a list of all your other debts and their balances.

Making Home Affordable Modifications
 

Not everyone will qualify to refinance their home, for a variety of reasons: refinancing may not lower monthly payments enough to make them affordable, they owe much more than their home is worth, their debt levels are too high, or they’ve already fallen behind on payments. For these homeowners, loan modification may be the solution.

To apply for a Home Affordable Modification, you must meet these qualifications:

• You live in the home with the loan you want to modify. Again, investment properties don’t qualify, unless you live in a one part of a two to four unit property.
   
• Your unpaid principal balance is equal to or less than $729,750 for a single family home. The limit is higher for two to four unit properties
  .
• Your loan was taken out before January 1, 2009.
   
• Your monthly payment (including taxes, insurance, and homeowners association dues) is more than 31% of your gross (before-tax) monthly income.
   
• Your mortgage payment is no longer affordable, perhaps because of a significant change in income or expenses.

You do not have to have missed payments to be eligible for the modification program, but falling behind doesn’t disqualify you either.

If you qualify, your lender will reduce your interest rate to as low as 2% in order to get your monthly payment down to a point where it is about 31% of your gross monthly income. If you can stick with the new, lower payments for three months, your rate will be fixed for five years. After five years, your rate can rise no more than one percentage point per year, until it reaches the cap set out in your modification agreement. That cap will be the market rate published by Freddie Mac when your modification was finalized. Essentially that means your rate can never be higher than market rate when your loan is modified.

If reducing your rate to 2% does not bring your payment down to about 31 percent of your monthly income, the lender may offer to stretch out your loan to 40 years, defer part of your principal balance or interest until a future date, or even forgive part of your balance.

If you pay your loan on time under this program, you can receive a principal reduction of up to $5,000 over five years, helping you build equity in your home.

Both first and second mortgages are eligible for modification under this program. If you have a second mortgage or home equity loan, however, the servicer of your first mortgage will receive a financial incentive from the government to get the second mortgage holder to “extinguish” (erase) your second loan.

If a modification isn’t an option, the servicer of your loan may receive financial incentives to accept an alternative to foreclosure, such as a short sale (where you sell your home for less than the balance you owe) or a deed in lieu of foreclosure. Borrowers may also receive up to $1,500 in relocation expenses in those situations.

You can get more information and determine if you are eligible for assistance at MakingHomeAffordable.gov.

Help is available! A counselor with the Union Plus Save My Home Hotline can help you understand your options under these and other programs. They will also provide housing counseling if it is required for your modification. Call 1-866-490-5361 or visit UnionPlus.org/SaveMyHome for more information.