The Obama administration on Friday announced changes to its Home Affordable Modification Program. To date, the $75 billion plan has helped only 170,000 homeowners finalize loan modifications, far short of the 3 million to 4 million goal originally intended. With the new changes, the program will have a focus on helping jobless homeowners keep their homes and encourage lenders to reduce the debt of underwater homeowners. With some 6 million homeowners at least two payments behind on their mortgages, and estimates of 10 million to 12 million new foreclosures over the next three years, stemming the tide of new and projected foreclosures will be critical to shoring up the housing market and aiding the economic recovery.
Here are some highlights:
HAMP offers three critical new functions; Jobless homeowners can get a three-to-six-month break on their mortgage payments; Banks will get financial incentives to reduce mortgage balances for under-water borrowers; and lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.
To qualify under the new jobless homeowner provisions, you must live in your home, have a mortgage of below $729,750 and receive unemployment benefits. If you cannot find a job by the end of the 3 to 6 month relief period, lenders will encourage you to consider a short sale or a deed-in-lieu of foreclosure, in which you agree to hand back the property to your lender.
Mortgage companies that already participate in HAMP must do the math to determine whether offering additional assistance to struggling homeowners is feasible. The government will offer lenders incentives to reduce the mortgage amount for borrowers who owe at least 15 percent more than their home's current value. For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents. The larger subsidies will help reduce principal of borrowers who are less under water. Qualifying underwater homeowners must have a mortgage of less than $729,750, be able to demonstrate financial distress and be spending at least 31 percent of pretax income on mortgage payments.
The FHA will receive $14 billion in incentive money from the federal bailout fund to reduce the struggling homeowners' primary mortgages by at least 10 percent. This is a voluntary plan for lenders. One major complaint from consumer advocates is that lenders will not be required to perform the FHA refinancing.
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