Obama's Plan to SAVE HOMEOWNERS explained. .

New Obama Bailout, Modifications and SHORT SALES.. . how will it affect you?

Considering that a lot of anxious homeowners were waiting for this report. .I have the highlights here. These questins and answers were posted at a White House Forum to inform the public of Obama’s new plan.

Let’s begin:

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

There is not much room here for most homeowners, 105% . .try 150%!

The reality in the street is that most homeowners are several thousands of dollars under water.

•  I do not live in the house that secures the mortgage I’d like to modify.  Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No.  For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible.  If you used to live in the home but you moved out, the mortgage is not eligible.  Only the mortgage on your primary residence is eligible.  The mortgage lender will check to see if the dwelling is your primary residence.

This wasn’t a surprise. . but it gives you notice that if you are thinking of moving out of your home before you find an option to settle your mortgage. .you will not be eligible if you are already living somewhere else.

• How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts.  The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history.  The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

The key thing here is that you will have to wait until March 4^th to call your lender and find out first if your mortgage(s) are securitized by Fannie or Freddie

• Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.  Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.  These borrowers, however, could save a great deal over the life of the loan.  When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan.  Compare this to your current loan terms.  If it is not an improvement, a refinancing may not be right for you.

Ok, this is your opportunity. . if you are in a interest only loan program and CAN afford to pay your monthly payments right now. . .don’t wait until your payments go up and get you into trouble. Even if you are current on your payments, call your mortgage holder and ASK THEM to help you refinance and convert your loan to a fixed rate. Your current payments may not change but you will save thousands of dollars over the life of your loan.

• 
  Will refinancing reduce the amount that I owe on my loan?

No.  The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans.  Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe.  However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

Very clear. .if you were hoping for a magic bullet here. .there will not be an across the nation mandate to reduce everyone’s principals.

• Do I need to be behind on my mortgage payments to be eligible for a modification? 

No.  Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default.  This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.   

This is not new. .if you see trouble ahead. . CALL YOUR BANK NOW!

• How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.  Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

Key figure. . 31% of your monthly gross income. In any event on March the 4^th we should have detailed guidelines.

• I have two mortgages.   Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

This is a surprise. .when you consider the second mortgages are normally the most abusive in rate charges to the homeowners. I have seen rates in the 12% range when you could have a first mortgage for 6%. They are excluded??

• How much will a modification cost me?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan.  If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee.  Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance. 

I have always advised my clients that there is no better person to modify your loan than your own self. There are many organizations around that will help you modify your loan if you just call them. Why pay someone else to do that for you??

• Is my lender required to modify my loan?

No.  Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis.  But the government is offering substantial incentives and it is expected that most major lenders will participate.

Again, the flaw exists in the “voluntary” part . .but I believe that this time the banks will get in the bandwagon if they want to continue in receiving bailout money.

• I owe more than my house is worth.  Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford.  Lenders are likely to lower payments mainly by reducing loan interest rates.  However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

This is what SHORT SALES ARE FOR. If you owe more than what your house is worth and are contemplating between 5 to 10 years for your equity to grow again to break a  even point. . you should consider a short sale if you CAN NOT MAKE YOUR MORTGAGE PAYMENTS . .

If modification is not a choice for you. . of course a short sale should be your next option!!

Lenders are now willing to negotiate with buyers willing to buy at a discount by taking a loss on the principal

A Short Sale helps them avoid having another foreclosure on their record. . and they know that if they FORECLOSE their property . .they will take probably LESS money than a short sale offer.

The Realtor negotiating your short sale should amplify this point with proof of comparables to the bank.

Your mortgage holder is only interested in one thing. . where are they going to lose the least amount of money?. .SHORT SALE or FORECLOSURE?

JUMBO LOANS

Unfortunately for those homeowners that have Jumbo loans this new program will not include you. . at present in Maryland a Jumbo loan is considered to be anywhere between  $271K to  $625K range. Depending where you live. As an example in Washington County Maryland t$271K is the limit of a conforming loan. . in Montgomery County is $625K

More information about The White House Forum here

More information about Short Sales in Maryland

Fernando Herboso has earned his CDPE certification to help Distressed Home Owners in Maryland , DC and Virginia. If you feel that you may need a short sale, call Fernando at 240-426-5754 for free consultation

Read Fernando’s eBook about SHORT SALES HERE