President Obama committed $75 billion on Wednesday to tackle the foreclosure crisis in an effort to prevent up to 9 million Americans from losing their homes.
The Treasury Department also said it would double the size of its lifeline to Fannie Mae and Freddie Mac. The government, which seized the mortgage finance companies last fall, said it would absorb up to $200 billion in losses at each company.
The plan is more ambitious than initially expected — and more expensive. It aims to aid borrowers who owe more on their mortgages than their homes are currently worth, and borrowers who are on the verge of foreclosure.
Here are some frequently asked questions about the program, which takes effect March 4:
If You Are Current on Your Mortgage
What if I’m current, but my house value has fallen?
Eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. The program only applies to loans held by Fannie Mae and Freddie Mac or loans they placed in mortgage backed securities.
Who is eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria 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.
What if I owe more than my property is worth?
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.
I have both a first and a second mortgage. Do I qualify?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the program. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.
Will refinancing lower my payments?
The plan is designed to give creditworthy borrowers who have shown a commitment to paying their mortgage an affordable payment that is 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.
What are the interest rate and other terms under the program?
The objective is to provide borrowers with a safe loan with a fixed, affordable payment. All loans refinanced under the plan will have a 30- or 15-year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
Will refinancing reduce the amount that I owe on my loan?
No. The program will 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.
How do I know if my loan is owned, or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4th, 2009.
When can I apply?
After March 4th, 2009.
What should I do until applications are accepted?
Gather the information you’ll need to provide to your lender after March 4, when the refinance program becomes available. This includes: information about the gross monthly income of all borrowers, including your most recent pay stubs (if you receive them) or documentation of income you receive from other sources; your most recent income tax return; information about any second mortgage on your house; payments on each of your credit cards (if you are carrying balances from month to month), and payments on other loans such as student loans and car loans.
If You Are at Risk of Foreclosure
Do I need to be behind on my payments to be eligible for a modification?
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.
What if I’m behind on my mortgage, or struggling to make payments?
The government’s program offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
How do I know if I qualify for a payment reduction?
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.
I don’t live in the house that I paid for with the mortgage I’d like to modify. Is this mortgage eligible?
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.
I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.
I have two mortgages. Will the plan reduce the payments on both?
Only the first mortgage is eligible for a modification.
I owe more than my house is worth. Will the plan reduce what I owe?
The primary objective of the 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.
I heard the government will be giving financial incentives to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the plan provides payments to borrowers who make keep up with the payments on the modified loan. The incentive will be paid monthly and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
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.
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.
How do I apply for a modification?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.
What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes:
* information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources
* your most recent income tax return
* information about any second mortgage on the house
* payments on each of your credit cards if you are carrying balances from month to month, and
* payments on other loans such as student loans and car loans.
Source: Federal Housing Finance Agency