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Making Home Affordable Programs Offer Help for Homeowners

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Making Home Affordable Programs Offer Help for Homeowners

Making Home Affordable, or “the Obama mortgage,” as it sometimes called, is a key program in President Barack Obama’s effort to help homeowners avoid foreclosure. There are two programs offered under this program: The Making Home Affordable Refinancing Program, which helps homeowners refinance into fixed-rate loans, and the Home Affordable Modification Program (HAMP), which encourages lenders to modify mortgages so homeowners will have lower monthly payments based on their incomes. When a loan refinance or modification is not feasible, a short sale (by which the home is sold for less than the amount owed) may be encouraged.

Lenders are not required to participate in either program, but they are offered financial incentives for doing so. In this article, we’ll answer some common questions regarding the programs and explain how they work.

What Is the Making Home Affordable Refinancing Program?

Although mortgage interest rates have continued to stay low by historical standards, there are many homeowners who can’t refinance because the value of their home has declined. Many loan programs today will not allow a homeowner to refinance unless the new loan amount is for 80 to 90% of the home’s value.

That’s where the Making Home Affordable refinancing program comes in. It allows homeowners to refinance to 15-year or 30-year fixed-rate loans, as long as the new loan amount does not exceed 125% of the home’s value.

You must meet all of the following qualifications in order to be considered for this program.

  • The home you will refinance is your primary residence. Loans on investment properties or second homes are not eligible unless you live in one unit of a two-to-four unit property.
  • Your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac. Not sure? Contact your loan servicer (the company to which you make your payments).
  • You haven’t been more than 30 days late on your mortgage in the past year. Only those who have been current for the past 12 months are eligible.
  • Your current mortgage loan does not exceed significantly more than what your home is worth. If the balance on your mortgage is larger than 125% of your home’s value, you will not be eligible. (To calculate this amount, simply take your home’s current value and multiply it by 1.25. If your loan amount is larger than that, you will not be eligible.) A second mortgage or home equity loan or line of credit cannot be refinanced under this program. But you may still be able to refinance the first mortgage.
  • You can afford the new loan. You must document that you have enough income to handle the new mortgage.

What Are Home Affordable Modifications?

You may not be able to refinance your home if you owe much more than your home is worth, you have a lot of debt, or you are behind on your payments. In those cases, you may want to find out whether you are eligible for loan modification.

How Does Making Home Affordable Work?

If you qualify for a Home Affordable mortgage modification (we’ll outline qualification details in a moment), your interest rate will be reduced. A lower interest rate means a lower monthly payment, and the goal is to lower your monthly payment to 31% of your gross (before taxes) monthly income. Your rate will be fixed for five years, provided you can make your first three monthly payments on time. After five years, your rate starts to rise, but no more than one percentage point each year, until it tops out at the interest rate cap described in your modification agreement.

There is a cap on the highest rate you can pay. The interest rate cap will be the market rate for mortgages as published by Freddie Mac when your modification is finalized. That ensures your rate will never be higher than the going mortgage rate at the time of your modification.

If lowering your interest rate does not provide enough relief, your lender may offer you a loan with a different term, which will lower your monthly payment even more. If that still is not enough, your lender may agree to defer — or even forgive — part of your principal balance or interest. Deferring some of your balance can be risky, though. You could find yourself with a “balloon” payment due in the future if you sell or refinance your home.

How Do I Qualify for Home Affordable Modification?

You’ll have to meet the following qualifications in order to be considered for a Home Affordable Modification.

  • The home you will refinance is your primary residence. Loans on investment properties or second homes are not eligible unless you live in one unit of a two-to-four unit property.
  • You owe $729,750 or less for a one-to-four unit property. (Higher limits apply to two-to-four unit properties.)
  • You received your loan before January 1, 2009.

You can be considered for this program whether you are current on payments or not.

How Can I Apply for the Refinancing or Modification Programs?

To apply for either the refinancing or modification program, you should contact your current mortgage lender or loan “servicer” — the company to which you currently make your payments. You’ll want to be prepared to give your lender information about your income and your debts. Here’s what you’ll need for each category.

Income: You’ll need your most recent paystub and details about other income you receive. Also have your most recent tax return handy.

Debt: You’ll need the most recent statement for any second mortgage or home equity loan you have, as well as your current balance and monthly payments for other debt such as student loans, credit cards, a car loan, and so on. (You can see how your debts are affecting your credit by viewing two of your free credit scores on Credit.com. Checking your scores will not harm them in any way.)

What Other Options Do I Have?

Can’t refinance or modify your loan? You may still be able to avoid foreclosure. The servicer of your loan may receive financial incentives from the government by allowing a “short sale” (by which your home is sold for less than what you owe, with the lender forgiving the difference) or a “deed in lieu of foreclosure” (also commonly known as “giving the keys to the house back to the lender”). And you, the homeowner, may be eligible for as much as $1,500 in relocation expenses in these circumstances.

Again, lenders receive financial incentives for participating, and those have been increased in an effort to get them on board. The government says that lenders representing 75% of mortgages are on board with the program. A list of participating lenders can be found at www.FinancialStability.gov. If yours is not listed, it’s still important to talk with your lender to find out if they are working with borrowers under this program.

Remember, the information provided above is for reference only. Be sure to speak with a loan modification expert before pursuing any options.

This article has been updated. It was originally published August 1, 2010.


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