Obama Plan ............... New Loan Modification Program

The Homeowner Affordability & Stability plan was released by the Obama administration on Wed March 4th.  There were two major parts of this plan that affect the Mortgage Industry.  The first part of the plan is a modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure.  The second part of the plan is a refinance program for existing Fannie Mae or Freddie Mac loans.

While our Executive Vice President at McCue Mortgage, Kim Neilson and others are still assessing the details of the Fannie Mae/Freddie Mac plan to determine our next steps, they have summarized it to a point that would make it more understandable to rest of us, and I will sharing this in two blogs.

The first part of the plan that as I stated above is the modification program that Servicers will offer to borrowers with high debt-to-income ratios or who are at risk of foreclosure, which states that:

• Existing mortgage must currently be a Fannie Mae or Freddie Mac loan.
  
• The mortgage loan is delinquent, or is expected to go into default soon.
  
• Borrowers must occupy property as primary residence
  
• Borrowers must provide hardship documentation.
  
• Borrowers must provide income documentation and evidence the monthly mortgage payment (housing ratio) is greater than 31%
• If the housing ratio is more than 31%, the Servicer will modify the terms of the loan, to reduce the housing ratio to 31% by:
  1. Lowering the interest rate, but the minimum rate (floor) is 2%.  The adjusted rate will be in effect for the first 5 years following modification, and then will increase by a 1% annually until it reaches the original rate.
  2. Extending the term up to 40 years.
  3. Provide principal forbearance which will later be paid back in the form of a balloon payment that will be due upon the earliest of the following:
     
     • Sale of property
       
     • Payoff of the loan
     • Maturity of the loan.
• Servicers will receive compensation of $1000 or $500 for each completed modification.
  
• A borrower whose monthly payment is reduced by six percent or more and make on time payments will receive $1000 principal reduction for up to five years.

I will end this post by stating that while I am sharing this information about the provisions that are contained in the Homeowner Affordability & Stability plan that became effective March 4th., that it does not mean that I am in favor of this, or believe that it will help us get out of this mess that we are in, because I don't believe that. I think that this plan just like all the others before it will help very few if any, and is more smoke and mirrors then anything else.  But I have provided this information so that those of you reading this can have a better understanding of it, and help you come to your own conclusion.

I will cover the second part of the plan that I stated above "refinance program for existing Fannie Mae or Freddie Mac loans" in my next post.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com