There’s no place like home.
If the financial crisis has taken you on a wild ride and left you feeling like you’re wandering on a winding road in a strange land, hang in there. You may find your way home with some help from the great and powerful Prez.
President Obama announced his Homeowner Affordability and Stability Plan today, with the intent to “. . . help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.” The plan provides for refinancing of loans owned or guaranteed by Fannie Mae or Freddie Mac, to make mortgage payments more affordable for those who have made their payments on time but have not been able to refinance due to declining home values, and those at risk of default. The plan will be implemented under guidelines to be developed by the Department of Treasury, provides incentives for loan servicers and borrowers to refinance the loans and stay current, and requires all financial institutions receiving Financial Stability Plan assistance to implement loan modification plans consistent with the Treasury guidelines. Though the plan presently applies only to Fannie Mae and Freddie Mac loans, the Administration intends to work with federal and state agencies to implement the upcoming Treasury Guidelines across the entire mortgage market, when permissible and appropriate, including loans owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs, the Department of Agriculture, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration.
The program applies only to homeowners who want to stay in their homes - not to “speculators or house flippers” - and is available to homeowners whose house is worth less than the mortgage balance, or who have a high combined mortgage debt compared to income, even if the homeowner is not in default on the mortgage payments. Lenders are required to reduce interest rates so the borrower’s monthly payment is no more than 38% of the borrower’s income, the fed would match further reductions in interest rates dollar-for-dollar with the lender, down to a 31% debt-to-income ratio, and lenders will be required to keep the modified payments in place for five years - after which the interest rate may be gradually stepped up to the conforming loan rate in place at the time of the modification.
President Obama also announced upcoming measures to allow judicial modifications of home mortgages during bankruptcy for borrowers who have run out of options, and to provide relocation and other forms of assistance for renters displaced by foreclosure. The bankruptcy provisions would require homeowners to first ask their servicers/lenders for a modification, and certify compliance with reasonable requests from the servicer to provide essential information. This provision would apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, “. . . so that millionaire homes don’t clog the bankruptcy courts.”
The guidelines for the program are scheduled to be announced on March 4, 2009, after which homeowners whose loans are owned or securitized by Fannie Mae or Freddie Mac may apply to their mortgage lender or servicer for refinancing under the program. Homeowners whose loans are already scheduled for foreclosure may contact the loan servicer to see if the loan may qualify under the program when it becomes available. The lender is not required to postpone the foreclosure, but many lenders have expressed an intent to postpone foreclosure sales on mortgages that may qualify for a modification under the program.
Meanwhile, homeowners who believe they may qualify for the program are advised by the Administration to gather information they will need when the program begins on March 4, including documentation of monthly gross income, most recent income tax return, information about any second mortgage, payments on credit cars on which balances are carried, and payments on other loans, such as student or car loans.
If you think you qualify for this program, follow the instructions on the links of this post, contact your lender, and get started. There will be an onslaught of calls to lenders and servicers, so thorough preparation will help to expedite your application and make sure you’re ready, when the time comes, to click the heels of your ruby slippers.