fyi - President Obama's eagerly anticipated foreclosure prevention program went into effect on Wednesday targeting 9 million borrowers for help.
The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:
First, the government is aiming to help more homeowners refinance into new low interest rates.
Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.
Refinance (max $417,000) - available through June 2010
Even homeowners with a mortgage that exceeds home value by 5% could be eligible. But the loan must be owned by Fannie Mae or Freddie Mac; the government is still working on getting other loan servicers to participate.
in some cases, lenders may not need to reappraise properties
borrowers cannot take cash out on these transactions; they're only allowed to refinance the balance they owe.
Who's not eligible? Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck & Jumbo Mortgages
All borrowers will have to prove they have sufficient income to be able to keep up their loan payments.
Mortgage modification for at-risk borrowers
Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.
Anyone at risk of default, such as those suffering serious hardships, income loss, increases in expenses, payment "shock" (such as when interest rates jump), high mortgage debt compared to income, who are underwater or who show other indications of being at risk of default, may be eligible for modification.
Borrowers with other debt, such as car loans and credit cards, exceeding 55% of their incomes, may still qualify for a modification, but they'll be required to accept debt counseling in a HUD-certified program.
For those that qualify, the servicer or lender can reduce your monthly mortgage payments to 31% of your gross income. The reduction would come mostly through interest-rate reductions - though rates can be lowered no more than to 2% - or by extending the length of the loan to 40 years. In some cases, principal reduction also would be an option.
The reduced payment would stay the same for five years and then gradually revert back to the conforming loan rates in place at the time of the modification, increasing by no more than 1% a year.
Borrowers would also receive incentive bonuses, in the form of principal reduction, of up to $1,000 a year for five years for making payments on time.
Eligibility for the program will sunset at on Dec. 31, 2012, and borrowers may tap the program only once.
Servicers who want to participate must sign up by the end of this year.
Who's not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help because the property must be owner-occupied. No investor, vacant or condemned properties are eligible. Occupancy will be verified through a credit report and other documentation.
no-doc loan applications, would not qualify.
To protect taxpayer money, modifications must make sound financial sense. Servicers are required to apply a "net present value test" on the loans at risk of immediate default or that are 60 days or more delinquent. If the test determines that the value of the loan is enhanced by doing a modification compared with allowing the loan to go into foreclosure, the lender will proceed with the workout. That will disqualify many borrowers who simply can't afford any reasonable mortgage payment.
Federal officials have also posted additional information for at www.hud.gov, including a "self-assessment" option to see if you qualify.
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